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THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


RE6.U.S.R*T.  OFFICE 


Modern  Business 

A    SERIES    OF    TEXTS    PREPARED    AS 

PART   OF   THE    MODERN  BUSINESS 

COURSE  AND  SERVICE  OF  THE 

ALEXANDER  HAMILTON 

INSTITUTE 


ALEXANDER  HAMILTON  INSTITUTE 
NEW  YORK 


Modern  Business 

Editor-in-Chief 

JOSEPH  FRENCH  JOHNSON 

Dean,  New  York  University  School  of  Commerce,  Accounts  and  Finance 

Associate  Editors: 

PETER  P.  WAHLSTAD,  ROLAND  P.  FALKNER 


Titles  Authors 

Business  and  the  Man Joseph  French  Johnson 

Economics  OF  Business   .      .      „      .      .      .  i  Joseph  French  Johnson 

(  r  rank  L.  McVey 

Organization  and  Control      .....  Charles W.Gerstenberg 

Factory  and  Office  Administration      ,      .  Lee  Galloway 

Marketing  Methods       • Ralph  Starr  Butler 

Advertising  Principles Herbert  F.  De  Bower 

Salesmanship  and  Sales  Management     .      ,  John  G.  Jones 

Credit  and  the  Credit  Man Peter  P.  WahlstaJ 

Accounting  Principles Thomas  W.  Mitchell 

Cost  Finding Dexter  S.  Kimball 

Corporation  Finance William  H.  Walker 

Business  Correspondence Harrison  McJohnston 

Advertising  Campaigns Mac  Martin 

Inl.\nd  Traffic Simon  J.  McLean 

Foreign  Trade  and  Shipping Erich  W.  Zimmermann 

Banking  Principles  AND  Practice      .      .      .  E.L.  Stewart  Patterson 

Domestic  AND  Foreign  Exchange        .      .      .  E.L,  Stewart  Patterson 

Insurance  and  Real  Estate \  S?^'^^-/^'''"'^^ 

(  Walter  Lmdner 

Merchandising John  B.  Swinney 

The  Exchanges  and  Speculation  ....  Albert  W.  Atwood 

Accounting  Practice  and  Auditing  .      .      .  John  T.  Madden 

Financial  and  Business  Statements  .      .      .  Leo  Greendlinger 

Investment Edward  D.  Jones 

Commercial  Law Walter  S.  Johnson 


MERCHANDISING 


BY 

JOHN  B.  SWIXNEY,  A.B. 

Professor  of  ^Larket'uui,  Tiihute  University 


MODERN  BUSINESS 

VOLUME    19 


ALEXANDER  HAMILTON  INSTITUTE 
NEW  YORK 


COPYRIGHT,  1918,  BY 

ALEXANDER  HAMILTON  INSTITUTE 


COPYRIGHT  IN  GREAT  BRITAIN,  1918,  BY 

ALEXANDER  HAMILTON  INSTITUTE 


The  title  and  contents  of  this  volume, 
as  well  as  the  business  growing'  out  of 
it.  are  further  protected  by  laws  re- 
lating to  trade  marks  and  unfair  trade. 

All  rights  reserved,  including  transla- 
tion into  Scandinavian. 


Registered  trade  mark,  Reg.  U.  S.  Pat.  Off., 
Marca  Registrada,  M.  de  F. 

Made  in  U,  S.  A. 


Hf 


PREFACE 

In  the  Text  on  "^larketing  ^Methods"  there  is  a 
general  survey  of  the  different  steps  in  marketing 
from  the  producer  to  the  consumer  as  well  as  a  discus- 
sion of  the  function  and  present  status  of  manufac- 
turer, jobber  and  retailer.  The  latter  chapters  of 
"^Marketing  ;Methods"  outline  in  detail  the  operating 
methods  of  the  manufacturer  in  marketing  his  goods. 
The  corresponding  operating  methods  of  the  whole- 
saler or  jobber  and  of  the  retailer  remain  to  be  dis- 
cussed and  this  is  the  purpose  of  the  present  volume 
on  "INIerchandising."  The  reader  is  assumed  to  be 
well  grounded  in  the  principles  of  marketing  as  dis- 
cussed in  "^Marketing  ]Methods,"  as  well  as  in  those 
of  organization  and  management,  advertising,  sales- 
manship, accounting,  credits  and  the  other  subjects 
preceding  this  in  the  Course. 

^Methods  of  doing  business  are  changing  daily,  es- 
pecially in  trading  concerns;  therefore  it  has  been 
necessary  to  make  a  special  investigation  of  the  field 
for  the  purpose  of  this  Text.  In  this  work  a  number 
of  experienced  investigators  have  assisted  me  in  col- 
lecting the  necessaiy  information.  The  work  has 
been  done  largely  by  interview,  and  visits  to  various 
Inisiness  centers  of  the  country  were  made  for  the 
purpose.     This  was  supplemented  by  a  large  amount 


990814 


vi  PREFACE 

of  correspondence  together  with  questionnaires.  Fi- 
nally each  chapter  as  prepared  has  been  read  by 
several  authorities  on  each  topic.  Some  were  univer- 
sity teachers ;  some  editors  of  trade  papers ;  some  sec- 
retaries of  trade  associations;  but  most  were  officers 
in  or  proprietors  of  wholesale  and  retail  concerns. 

To  give  individual  credit  to  each  one  who  has  as- 
sisted would  be  out  of  question,  for  the  number  would 
be  several  hundred;  and  in  addition  many  good  sug- 
gestions and  much  valuable  material  has  been  obtained 
by  checking  over  the  files  of  correspondences  with  In- 
stitute subscribers.  So  the  limitations  of  space  in  the 
preface  require  the  author,  much  to  his  regret,  to  con- 
tent himself  with  one  general  acknowledgment  of  his 
indebtedness. 

It  is  possible,  however,  to  give  personal  credit  to 
my  assistants.  First,  I  must  mention  Mr.  W.  L. 
Durant,  who  has  worked  with  me  on  the  whole  volume 
and  to  whom  much  credit  is  due.  Next,  I  want  to 
record  my  indebtedness  to  Messrs.  D.  H.  Eastmead, 
George  F.  Hamilton,  Max  V.  MacKinnon,  R.  B. 
Shumway  and  Harold  B.  Kreider,  each  of  whom  as- 
sisted in  the  work  of  investigation  and  the  prepara- 
tion of  the  manuscript.  In  addition  various  members 
of  the  Institute  Staff  collaborated  frequently,  while 
others,  especially  Messrs.  Cuthbert  Hague,  Ernest  E. 
Jenks  and  the  late  Allan  C.  Carroll,  cooperated  heart- 
ily in  my  regular  work  so  that  I  could  get  time  to 
give  to  the  preparation  of  this  volume. 

John  B.  Swinney, 


TABLE  OF  CONTENTS 

PART  I:     WHOLESALE  MERCHANDISING 

CHAPTER  I 
THE  SELLING  FIELD 

SECTION  PAGB 

1.  Status  of  Wholesale  Merchandising      ....  3 

2.  Point  of  Attack 4. 

3.  Radius  Within  Which  Jobber  Can  Compete  Suc- 

cessfully       4 

4.  Radius  Within   Which   Jobber   Can  Work   Inten- 

sively       ;^  6 

5.  Radius  Within  Which  Jobber  Can  Render  Efficient 

Service 6 

6.  Study  of  Business  Cycles 7 

7.  Effect  of  Crop  Conditions 8 

8.  Other  Guides  to  Business  Conditions     ....  9 

9.  Total  Consumption  Capacity 10 

10.  Condition  in  the  Jobber's  Own  Lines     .       .       .       .11 

11.  Study  of  the  Consumer 11 

12.  Study  of  the  Retailer 13 

13.  Classification  of  Retailers 14 

14.  Source  of  Information  on  Retailers        ....  16 

15.  Reports  from  Salesmen 17 

16.  Analysis  of  Competition 17 

17.  Business  Policies  of  Competitors 20 

CHAPTER  II 
MERCHANDISING  POLICIES 

1.     Two  Kinds  of  Business  Policies 22 

:2.     Main  Sales  Appeal 22 

■yU 


viii  RETAIL  MERCHANDISING 

SECTION  ^^^^ 

3.  Marketing  Policy 23 

4.  Price  Policy ^^ 

5.  Locality  Price 24) 

6.  Competitive  Prices 25 

7.  Loss  Leaders 25 

8.  Different  Prices  for  Different  Classes  of  Customers  26 

9.  Discount  Policy 26 

10.  Three  Kinds  of  Discounts 27 

11.  Cash  Discount     .            •      .                   ....  28 

12.  Extra  or  Special  Discounts 28 

13.  Extra  Discounts  on  Large  Quantity  Purchases     .  29 

14.  Extra  Discounts  on  Drop  Shipments   ....  29 

15.  Credit  Policy 30 

16.  Dating  of  Invoices 31 

17.  Trade  Acceptances 32 

18.  Credit  for  Goods  Returned 33 

19.  Other  Business  Policies 34 


CHAPTER  III 
ORGANIZING  AND  FINANCING  THE  BUSINESS 

1.  Early  Forms  of  Organization 35 

2.  Military  T>^pe  of  Organization 36 

3.  Functional  Type  of  Organization 37 

4.  Variation  In  Detail 38 

5.  Financial  Division 39 

6.  Budget 39 

7.  Checking  the  Budget 41 

8.  Auditing  the  Various  Reports 42 

9.  Credit  Department 45 

10.     Collecting  Past  Due  Accounts 45 


CONTENTS  ix 

CHAPTER  IV 

MERCHANDISING  THE  BUSINESS 

SECTION  PAGE 

1.  Function  of  a  Merchandising  Division  ....  48 

2.  Merchandise  Office 48 

3.  Buying  Control 49 

4.  Indicating  Slow-Selling  Lines          52 

5.  Selection  of  Buyers 52 

6.  Essential  Qualifications  of  the  Buyer    ....  53 

7.  The  Buying  Market 54 

8.  Buying  Methods 54 

9.  Authority  of  the  Buyer 56 

10.  Discounts 56 

11.  Pricing 57 

12.  Branch  Buying  Office 58 

13.  Supervision  of  Stockkeeping 59 

14.  Necessity  for  Careful  Stockkeeping      ....  60 

15.  Stock  Rooms ;'      .  60 

16.  Stockkeeping  Methods 61 

17.  Perpetual  Inventories 61 

18.  Physical  Inventories 62 

CHAPTER  V 

SELLING  AND  SALES  SUPERVISION 

1.  Function  of  the  Sales  Division 65 

2.  Application  of  Intensive  Salesmanship  to  a  Job- 

bing Business 66 

3.  Sales  Department  Office 66 

4.  Sales  Plan     . 67 

5.  Dividing  the  Territory 68 

6.  Sort  of  Salesmen  to  Employ 70 

7.  Expense  of  Employment  and  Training       ...  72 

8.  Organizing  the  Sales  Force 72 

9.  Price  Book 73 


X  RETAIL  MERCHANDISING 

SECTION  PAGE 

10.  Determining  Compensation 74 

11.  Organization  of  Recording  and  Statistical  Depart- 

ments   .             ...  77 

12.  Keeping  in  Touch  with  the  Men 78 

CHAPTER  VI 

ADVERTISING 

1.  Necessity  for  Jobber  Advertising 80 

2.  Present  Status  of  Jobber  Advertising  ....  81 

3.  Function  of  Jobber  Advertising 81 

4.  Advertising  for  Manufacturing  and  Semi-Jobbers  83 

5.  Organization  of  Advertising  Department  ...  84 

6.  The  Appeal 85 

7.  Advertising  Appropriation 87 

8.  Selection  of  Medium .  87 

9.  Miscellaneous  Types  of  Advertising     ....  88 

10.  Direct  Advertising  for  the  Jobber 88 

11.  Jobber's  Catalog 88 

CHAPTER  VII 
COOPERATING  WITH  THE  RETAILER 

1.  Jobber's  Obligation  to  Cooperate 90 

2.  Two  Kinds  of  Dealer  Cooperation 91 

3.  Helping  in  the  Solution  of  Individual  Problems     .  91 

4.  Credit  Man  as  Service  Man 92 

5.  Dealer  Aids 92 

6.  Accounting  and  Store  Systems 94 

7.  Advertising  Helps 95 

8.  Dealer  Service  Thru  the  House  Organ        ...  96 

9.  Retail  Salesmanship 96 

10.  Correspondence  Courses  in  Retail  Selling  ...  97 

11.  Demonstrations  of  Salesmanship     .       .       .       .       .  97 

12.  Sales  Contests 98 


CONTEXTS  xi 

SECTIOX  PAGE 

13.  House  Organs   and  Miscellaneous  Dealer  Litera- 

ture        98 

14.  Selling  Points  of  Merchandise 99 

15.  Trade  Extension  Trips 99 

16.  Merchants'  Weeks  or  Seasons 99 

IT.     Checking  up  Results  from  Dealer  Service  .      .      .  100 


CHAPTER  VHI 

OPERATING  THE  BUSINESS 

1.  Function  of  the  Operating  Division      ....  103 

2.  House  Manager 103 

S.  House  Policies 104 

4.  Methods  of  Employment 105 

5.  Standards  for  Clerical  Work  and  Wage  Systems  .  105 

6.  Instruction  and  Welfare  Work 107 

7.  General  Office 107 

8.  Order  and  Registry  Departments 108 

9.  Timing  the  Order  ' 110 

10.  Order  Department  Reports Ill 

11.  Order  and  Registry'  for  Mail  Orders     .       .       .       .111 

12.  Traffic   Department 113 

13.  Contract  Department 114 

14.  Billing  Department 115 

15.  Claim  Department 116 

16.  Profit  and  Cost  Department 116 

17.  Bookkeeping  Department 118 

18.  Cashier,  Stenographers  and  Miscellaneous  General 

Office  Employes 119 

19.  Warehouse  Department 119 

20.  Receiving  Department 119 

21.  Packing  Department .  120 

22.  Shipping  Department 121 


xii  RETAIL  MERCHANDISING 

CHAPTER  IX 

MANUFACTURING  JOBBER  AND  SEMI-JOBBER 

SECTION  PAGE 

1.  Manufacturing  Jobber  Defined        .....  122 

2.  Why  Jobbers  Manufacture 122 

3.  Methods  of  Organization 124- 

4.  Relative  Advantage  of  the  Two  Types  of  Organ- 

ization         125 

5.  Production  Methods 126 

6.  Stockkeeping 126 

7.  Advertising  and  SelHng 126 

8.  Special  Terms 127 

9.  Accounting  and  Costkeeping 127 

10.  Pricing  Goods  to  Jobbing  Departments    .       .       .  128 

11.  Definition  of  Semi-Jobber 129 

12.  Reasons   for  Development  of  Semi-Jobbing  Busi- 

ness         129 

13.  Organization        129 

14.  Stockkeeping 131 

15.  Accounting 132 

16.  Pricing  Goods  to  Retail  Store 132 

CHAPTER  X 

COOPERATIVE  JOBBING 

1.  Basic  Reasons  for  the  Cooperative  Jobbing  Idea  .  134 

2.  Behind  Cooperative  Jobbing 135 

3.  Buying  Syndicates 135 

4.  Cooperative  Manufacturing 136 

5.  True  Cooperative  Jobbing 136 

6.  General  Plan  of  Organization 137 

7.  Method  of  Stock  Subscription 137 

8.  Voting  Power 139 

9.  Dividends 139 

10.     Manager  and  Directors 140 


CONTENTS  xiii 

SECTION-  PAGE 

11.  Buying  Advantage 140 

12.  Buying  Arrangements 141 

13.  Selection  of  Merchandise 141 

14.  Stockkeeping 142 

15.  Selling 142 

16.  Returned  Goods  and  Exchanges 143 

17.  Prices 143 

18.  Credits 144 

19.  Deliveries 144 

CHAPTER  XI 

SELLING  AGENT  AND  FACTOR 

1.  Necessity  for  Many  Distributive  Agents     .      .      .  146 

2.  Manufacturer's  Selling  Agent 147 

3.  Compensation  of  Selling  Agents 148 

4.  Pricing 148 

5.  Delivery  and  Other  Expenses 148 

6.  Sales  Agent's  Contract  and  Authority  .       .       .       .149 

7.  Two  Classes  of  Selling  Agents 149 

8.  Services  Rendered  by  Selling  Agent      ....  150 

9.  Selling  Agent's  Organization 151 

10.  Mill  Agent 152 

11.  Factor  and  His  Function 153 

12.  Form  of  Agreement 154 

13.  Method  of  Operation 154 

14.  Compensation  of  Factor 155 

15.  Factor's   Organization           156 

CHAPTER  XII 

COMMISSION    MEKCHANT   AND    BR0K1:H 

1.  Necessity  for  the  Commission  Merchant    .             .  158 

2.  Activities  and  Compensation  of  Commission  Mer- 

chants    159 


xiv  RETAIL  MERCHANDISING 

SECTION  PAGE 

3.  Commission  Merchants  and  Manufacturers'  Agent  159 

4.  Commission  Merchants  and  Factors      ....  160 

5.  Rates  of  Commission 160 

6.  Commission  Contracts 161 

7.  Organization 164 

8.  Operating  a  Commission  House 165 

9.  Export  Commission  Houses 167 

10.  Necessity  for  the  Merchandise  Broker  ....  168 

11.  Function  of  the  Broker 168 

12.  Commission  Merchants  and  Brokers      ....  169 

13.  Extent  of  Merchandise  Brokerage 169 

14.  Broker's  Contract .  169 

15.  Broker's  Commission 170 

16.  Broker's  Organization  and  Operating  Method       .  170 


PART  II:     RETAIL  MERCHANDISING 
CHAPTER  I 

THE  SELLING  FIELD 

1.  Old  Merchandising  Methods 175 

2.  Retailer  Must  Analyze  Territory'  and  Competition  176 

3.  General  Store  as  a  Type 176 

4.  Reason  for  Opening  the  Store 177 

5.  Analysis  of  Population 177 

6.  Division  of  Population  into  Classes       ....  179 

7.  Other  Sources  of  Trade 181 

8.  Studying  Competitors    .      .      .    ' 181 

9.  Large  Department  Store  as  a  Competitor  .       .       .  183 

10.  Chain  Store  as  a  Competitor 184 

11.  Competition  with  Mail-Order  Houses   ....  185 

12.  Learning  from  Competitors 186 


CONTENTS  XV 

CHAPTER  II 

MERCHANDISING  POLICIES 

SECTION  pj^(3E 

1.  Necessity  for  Statement  of  Business  Policies  .       .  187 

2.  Two  Kinds  of  Policies 187 

3.  Class  of  Trade 188 

4.  The  Big  Appeal 189 

5.  Buying  Policies 190 

6.  Maintenance  of  Prices    .       .      .       .      .      ,       .      .  191 

7.  Slow-Selling  Sj'stems 192 

8.  Returned  Goods  and  Refunds 193 

9.  Credit  Policy 195 

10.  Adjustments 195 

11.  Deliveries 197 

12.  Store  Creed 197 

CHAPTER  III 
ORGANIZING  AND  FINANCING  THE  STORE 

1.  Meaning  of  Efficient  Organization 200 

2.  Functionalizing  the  Business 201 

3.  Dcpartmentizing  the  Business 202 

4.  Organization   Chart 203 

5.  General  Manager 203 

6.  Financing  a  Store 204 

7.  Financial  Budget 205 

8.  Counting  Room 207 

CHAPTER  IV 
OPERATING  AND  RECORDING  THE  BUSINESS 

1.  Necessity  for  Operating  Function 209 

2.  Superintendent 209 

3.  Choosing  the  Store  Site 210 

4.  Store  Building 210 

5.  Store  Front 211 


xvi  RETAIL  MERCHANDISING 

SECTION  PAGE 

6.  Heat,  Light  and  Ventilation 211 

7.  Store  Equipment 212 

8.  Standards  in  Equipment 213 

9.  Organization  of  the  Personnel 21 4< 

10.  Employing  New  Clerks .       .  215 

11.  Training  and  Welfare  Work 215 

12.  Wage  Systems 216 

13.  Floor  and  Aisle  Managers 218 

14.  Inspectors  and  Wrappers .  219 

15.  Delivery  Service 219 

16.  Records  Manager 220 

17.  Retail  Accounting 221 

CHAPTER  V 
TRAINING  THE  SELLING  FORCE 

1.  "The  Salesman  Is  the  Store" 223 

2.  Explaining  the  Store  Policy 224 

3.  Teaching  the  Store  System 225 

4.  Beginning  Actual  Selling 226 

5.  Special  and  General  Bulletins 227 

6.  Studying  Merchandise 227 

7.  Libraries  and  Rest  Rooms 228 

8.  Junior  Courses 228 

9.  Cooperating  with  the  Public  Schools    ....  229 

10.  Training  the  Non-Selling  Employes      ....  229 

11.  Results  of  the  Educational  Work 230 

CHAPTER  VI 

BUYING 

1.  Necessity  for  Good  Buying 231 

2.  Organization  for  Buying 231 

3.  Basic  Facts  for  Merchandising 232 

4.  Determination  of  Lines  to  Be  Carried  ....  233 


CONTENTS  xvii 

SKCTIOK  PAGE 

5.  Apportionment  of  Investment 234? 

6.  Merchandise  Plan 236 

7.  Fixing  the  Standard  Turnover 238 

8.  Determining  the  Gross  Profit  Desired   ....  239 

9.  Turnover  as  a  Merchandise  Factor       ....  240 

10.  Controlling  the  Bu3'ing 243 

11.  Concentration  of  Purchases 245 

12.  Buying  Interview 246 

13.  Selection  of  ]\Ierchaiulivo  ln>-  (Jaality   ....  246 

14.  Element  of  Price 247 

15.  Attitude  Toward  Discounts 247 

16.  Accrediting  the  Discounts 248 

17.  Element  of  Style,  Novelty  and  Exclusiveness  .       .  249 

18.  Stocking  New  Lines  .      .       . 249 

19.  Pricing  the  Goods 250 

20.  Profits 250 

21.  Buyer  as  a  Merchant 251 

CHAPTER  VH 
STOCKKEEPING 

1.  Necessity  for  Good  Stockkeeping 253 

2.  Receipt  of  Merchandise 255 

3.  Reserve  Stocks 258 

4.  Arrangement  of  Reserve  Stocks 260 

5.  Active  or  "Forward"  Stock 261 

6.  Importance  of  Keeping  Track  of  Stock     .       .       .  262 

7.  Preparing  for  Phj'sical  Inventory 265 

8.  Preliminary  Work 265 

9.  Inspecting  Stock 266 

10.  Numbering 266 

11.  Changes  After  First  Count 267 

12.  Taking  Stock  While  Business  Goes  On       .      .      .  267 

13.  Plan     f  Inventory 267 

14.  Subdividing  the  Inventory 268 

XlX-2 


xviii  RETAIL  MERCHANDISING 

CHAPTER  VIII 
ADVERTISING  AND  DISPLAYS 

SECTION  PAGE 

1.  What  Is  Retail  Advertising? 269 

2.  Starting  Right 270 

3.  Advertising  and  Store  Service 270 

4.  Value  of  the  Newspaper 271 

5.  Intermittent  and  Continual  Advertising     .       .       .  271 

6.  What  to  Advertise 272 

7.  Must  Each  Advertisement  Pay  for  Itself?       .       .  273 

8.  Store  News    . 273 

9.  Change  Copy  Often 274 

10.  Put  Interest  into  Copy 274 

11.  Individuality  in  Copy  and  Display        ....  275 

12.  Letters  and  Circulars 276 

13.  Store  Papers 277 

14.  Other  Mediums 277 

15.  Use  of  Dealer  Helps 278 

16.  Display  Advertising 278 

17.  Guiding  Principles  That  Govern  Interior  Displays  279 

18.  Aids  to  Interior  Displays 280 

19.  Window  Displays 281 

CHAPTER  IX 
DEPARTMENT  STORE  AND  SPECIALTY  SHOP 

1.  Point  of  View 283 

2.  Development  of  the  Department  Store  .  283 

3.  Selling  Field  and  Policies 284 

4.  Organization  and  Financing  of  Department  Stores  284 

5.  Operating  the  Department  Store 285 

6.  Delivery  System 286 

7.  Mail-Order  Departments 287 

8.  Merchandise  Office 287 

9.  Advertising  Practice 288 


CONTENTS  xix 

SECTION  PAGB 

10.  One-Line  or  Specialty  Stores £89 

11.  Analysis  of  Territory  and  Competition      .      .      .  289 

12.  Marketing  Policies 291 

13.  Organization  and  Financing 292 

14-.  Buying  for  a  Specialty  Store 292 

15.  Stockkeeping 292 

16.  Accounting 293 

17.  Store  Service 294 

18.  Sales  Force 294 

19.  Store  Building  and  Fixtures 295 

20.  Mark-Up,  Turnover  and  Prices 295 

21.  Advertising 296 

CHAPTER  X 
THE  CHAIN  STORE 

1.  Analysis  of  the  Selling  Field 298 

2.  Merchandising  Policies 299 

3.  Partnership  Type  of  Organization        ....  301 

4.  Getting  the  Partners 301 

5.  Organization  and  Operation 302 

6.  Advantages  of  the  Type 303 

7.  Corporation  Type  of  Chain  Store 304 

8.  General  Plan  of  Organization 305 

9.  Real  Estate  Department 305 

10.  Merchandising 306 

11.  Supply  Department 307 

12.  Central  Warehouse 307 

13.  Control  of  Warehouses 308 

14.  Planning  Special  Sales 309 

15.  Employment  and  Training 309 

16.  Keeping  in  Touch  with  Employes 311 

17.  District  Manager 311 

18.  Department  Managers 312 

19.  Advertising  and  Displays 312 


XX  RETAIL  MERCHANDISING 

SECTION  PAGE 

20.  Mail-Orders  and  Local  Agencies 31S 

21.  Store  Manager 314! 

22.  Stockkeeping  System 314 

23.  Control  of  Stock  Turnover 316 

24.  Accounting  System  for  Store 316 

25.  Accounting  System  for  Central  Organization    .       .  317 

CHAPTER  XI 

MAIL-ORDER  HOUSE 

1.  Analysis  of  the  Selling  Field 319 

2.  Marketing  Policies 320 

3.  Location 321 

4.  Organization 323 

5.  Financing  a  JMail-Order  House 323 

6.  Merchandising  the  Business 324 

7.  Pricing 326 

8.  Stockkeeping 327 

9.  Sales  Promotion 328 

10.  Advertising 329 

11.  The  Catalog 329 

12.  Operating  the  Business 330 

CHAPTER  XII 

COOPERATIVE  STORE 

1.  Reason  for  the  Cooperative  Movement  ....  334 

2.  Starting  a  Cooperative  Store 335 

3.  Organizing   the    Store 337 

4.  Store  Manager 338 

5.  The  Budget 338 

6.  Business  Policies 339 

7.  Buying  and  Stockkeeping 339 

8.  Sales  Policies 341 

9.  Deliveries 341 


CONTEXTS  xxi 

SECTION-  PAGE 

10.  Credit  Policy 342 

11.  Advertising 344. 

12.  Salesmen  and  Salaries 344 

13.  Accounting  Sj'stem 345 

14.  Keeping  Track  of  Members'  Purchases      .       .       .  346 

15.  Distribution  of  Profits 347 


PART  I 

4 

WHOLESALE  MERCHANDISING 


WHOLESALE 
MERCHANDISING 

CHAPTER  I 

THE  SELLING  FIELD 

1.  Status  of  wholesale  merchandising.— 'During  re- 
cent years,  business  executives  have  made  an  insistent 
demand  for  improvement  in  working  methods.  There 
the  easiest  point  to  attack  was  the  factory.  The  re- 
sults were  so  startling  that  the  work  has  been  extended 
to  the  office  and  finally  to  the  sales  force.  The  manu- 
facturer, therefore,  was  the  first  to  apply  the  modern 
methods  of  analysis  and  planning  to  marketing. 

The  wholesale  merchant  or,  as  he  is  generally  called, 
the  jobber,  was  the  last  member  in  the  distributing 
process  to  feel  the  necessity  for  modem  methods. 
When  he  saw  many  manufacturers  selling  direct  to 
the  retailer  and  many  retailers  in  turn  buying  direct 
from  the  manufacturer,  he  realized  how  precarious 
was  his  position  in  the  distributing  chain.  As  soon  as 
he  began  to  study  the  situation  thoroly,  he  found  there 
was  a  wide-spread  impression  that  the  jobber  is  not  a 
necessary  factor  in  marketing  and  that  at  best  he  is  a 
wasteful  one.  A  thoro  revision  of  jobbing  methods  is 
now  being  made,  and  already  many  jobbers  are  as 


4  WHOLESALE  MERCHANDISING 

up-to-date  in  their  merchandising  as  any  manufac- 
turer or  retailer.  Those  who  do  not  follow  the  lead  of 
their  more  progressive  competitors  cannot  expect  to 
outlive  their  generation. 

2.  Point  of  attack. — In  order  to  study  wholesale 
merchandising  systematically,  it  is  advisable  to  pro- 
ceed as  if  a  new  wholesale  house  were  to  be  organized.- 
The  methods  to  be  considered  are  equally  applicable 
to  old  and  well-established  houses.  Probably  more 
jobbers  fail  because  they  do  not  frequently  check  over 
the  business  from  the  beginning  and  revise  their  meth- 
ods and  policies  so  as  to  harmonize  with  changing  con- 
ditions, than  from  any  other  one  cause. 

The  first  task  of  the  wholesaler  is  to  make  a  thoro 
analysis  of  his  territory  and  of  the  competition  at 
present  existing  within  that  territory.  In  general,  it 
is  much  the  same  sort  of  analysis  that  the  manufac- 
turer makes  when  he  sizes  up  the  market  for  his  prod- 
uct, and  of  this  there  is  full  discussion  in  the  Modern 
Business  Text  on  "Marketing  INIethods."  However, 
the  jobber's  analysis  differs  in  detail,  because  his  work- 
ing conditions  are  not  the  same  as  those  of  the  manu- 
facturer. 

3.  Radius  within  which  jobber  can  compete  sue- 
cessfnUy. — The  jobber  begins  by  blocking  out 
roughly  his  selling  field.  This  is  more  dependent 
upon  the  facilities  and  rates  for  shipment  than  on  any 
other  single  factor,  because  the  jobber  often  pays  not 
only  the  transportation  charges  but  also  cartage  to 
the  retailer's  store.     In  any  case  the  shipping  cost  is  a 


THE  SELLING  FIELD  5 

factor  to  be  considered  in  figuring  the  net  cost  of  goods 
delivered  to  the  retailer.  When  a  Chicago  grocery- 
jobber  solicits  business  in  New  York  in  competition 
with  New  York  jobbers,  he  must  either  pay  all  charges 
to  the  retailer's  door,  make  a  lower  price,  or  offer  some 
other  inducement  to  offset  the  competitive  advantage 
of  the  nearby  jobber.  On  staple  lines  no  other  induce- 
ment is  possible  and  since  the  margin  of  profit  will  not 
permit  paying  freight  and  cartage  charges,  the  Chi- 
cago jobber  cannot  compete.  The  result  is  that  he  so- 
licits business  in  New  York  on  private  brands  only. 

In  other  lines,  such  as  dry-goods  and  hardware,  it 
is  not  customary  to  prepay  freight.  Therefore  the 
Philadelphia  dry-goods  jobber  in  competing  for  busi- 
ness in  New  York  against  New  York  jobbers  must  do 
so  on  a  basis  of  service,  style,  price  or  some  other  fac- 
tor. It  is  a  serious  economic  question  whether  the 
Philadelphia  dry-goods  j()l)})er  should  do  business  in 
New  York  in  staple  lines.  If  he  cannot  get  the  busi- 
ness by  superiority  of  style  and  pattern  or  thru  the 
policy  of  the  house  for  quality  and  service  at  a  fair 
price ;  if  he  must  resort  to  what  is  really  price-cutting 
in  the  way  of  freight  concessions,  so  that  he  acts  as  a 
mill  distributor  at  no  profit,  it  would  be  better  to  do 
less  business  in  a  smaller  territory  at  a  profit.  The 
problem  of  the  jobber,  therefore,  is  to  analyze  thoroly 
the  traffic  situation  in  order  to  determine  just  how 
far  from  a  central  point  he  can  distribute  the  different 
classes  of  merchandise  in  competition  with  other  job- 
bers in  his  own  and  neigliboring  cities. 


6  WHOLESALE  :\IERCHANDISING 

4.  Radius  within  wJiich  jobber  can  work  inten- 
sively,— Wholesalers  are  coming  to  realize  that  they 
should  work  their  selected  territory  more  intensively 
if  they  are  to  increase  their  profit  and  to  realize  also 
that  there  is  an  increasing  amount  of  loss  in  jobbing 
done  at  a  distance  from  the  home  city.  The  jobber 
who  scatters  his  sales  efforts  over  a  wide  territory  in- 
creases the  cost  of  jobber  service  generally  thru  dupli- 
cation of  sales  effort.  In  outlying  territories,  he  gets  a 
little  business  at  a  high  cost,  to  the  disadvantage  of 
local  jobbers  to  whom  it  rightly  belongs  and  at  a  loss 
to  all  others  concerned.  The  president  of  a  wholesale 
hardware  house  in  Chicago  asserts  that  he  cannot  oper- 
ate intensively  outside  a  radius  of  150  to  200  miles. 

5.  Radius  within  which  the  jobber  can  render  effi- 
cient service. — After  all,  the  only  thing  the  jobber  has 
to  sell  is  service.  In  determining  the  jobber's  operat- 
ing territory,  therefore,  the  preceding  factors  are  of 
less  importance  than  the  consideration  of  the  radius 
within  which  he  can  render  proper  service.  The  job- 
ber who  tries  to  do  a  nation-wide  business  from  one 
point,  without  branch  houses,  is  at  a  serious  disadvan- 
tage and  it  is  doubtful  whether  he  can  give  his  cus- 
tomers that  measure  of  service  to  which  they  are  en- 
titled and  for  which  they  pay.  One  wholesaler  says  it 
is  impossible  to  give  efficient  service  beyond  a  radius 
of  200  to  300  miles.  Conditions  vary  with  different 
lines.  A  grocery  jobber  sets  the  limit  on  staple  lines 
at  100  miles,  while  a  dry-goods  jobber  thinks  he  can 
serve  well  within  an  average  radius  of  500  miles. 


THE  SELLING  FIELD  7 

Various  factors  must  be  considered  as  an  index  to 
the  jobber's  ability  to  render  good  service.  One  fac- 
tor is  the  time  required  to  make  dehveries.  Retailers 
are  more  and  more  buying  in  small  quantities  in  order 
to  reduce  stocks  and  increase  their  turnovers.  Nat- 
urally the  jobber  who  can  deliver  the  goods  most 
promptly  will  get  the  business.  Consequently,  in 
making  his  traffic  map  the  jobber  considers  the  time 
required  to  make  delivery  at  each  principal  point  in 
his  territory.  The  effect  of  the  jobber's  location  on 
his  ability  to  obtain  his  merchandise  from  manu- 
facturers and  producers  must  also  be  considered. 

6.  Study  of  business  cycles. — As  every  student  of 
business  knows,  there  is  a  distinct  tendency  for  peri- 
ods of  business  depression  and  prosperity  to  move  in 
cycles.  Thus  a  period  of  depression  will  be  followed 
by  successive  stages  of  readjustment,  improvement 
and  prosperity.  The  exact  duration  of  these  cycles 
cannot,  of  course,  be  definitely  predetermined;  they 
are,  however,  recurrent  and  their  separate  parts  fol- 
low one  another  in  the  same  order.  During  1908  and 
1909,  conditions  in  the  United  States  were  generally 
bad,  following  the  panic  of  1907.  Factories  were 
running  on  part  time,  many  employes  were  idle  and 
people  had  less  money  than  usual  to  spend.  As  a 
consequence,  few  new  business  enterprises  were  or- 
ganized and  established  concerns  were  forced  to  re- 
trench. The  mercantile  world  suffered  severely  and 
many  large  wholesale  and  retail  houses  failed.  Peri- 
ods of  readjustment  and  prosperity  followed.     These 


8  WHOLESALE  MERCHANDISING 

cycles  are  likely  to  be  less  pronounced  in  the  future 
than  they  were  before  the  inauguration  of  the  pres- 
ent Federal  Resei^e  banking  system.  The  study  of 
business  conditions  is  begun  by  checking  up  the  peri- 
ods of  expansion  and  depression  so  as  to  forecast  their 
effect  on  the  immediate  future.  For  a  fuller  dis- 
cussion of  the  cycle  of  trade  the  reader  is  referred  to 
the  Modern  Business  Text  on  "Investment." 

Sometimes  it  happens  that  a  generally  depressed 
business  condition  is  advantageous  for  a  particular 
hne.  The  makers  of  Karo  Corn  Symp  were  about 
ready  to  market  their  product  when  a  panic  occurred. 
In  spite  of  it  they  went  ahead,  for  they  concluded  that 
there  would  be  many  people  who  would  have  to  forego 
the  use  of  butter  and  who  would  buy  the  cheaper  prod- 
uct, Karo,  as  a  substitute ;  and  they  were  right.  Such 
opportunities  are  not  frequent  with  manufacturers, 
but  it  is  always  possible  to  adjust  a  jobber's  sales 
effort  to  changed  conditions  because,  unlike  the  manu- 
facturer, he  can  change  his  lines  of  merchandise  al- 
most overnight. 

7.  Effect  of  crop  conditions. — It  is,  of  course,  ob- 
vious that  when  the  cotton  crop  in  the  South  or  the 
corn  crop  in  the  Middle  West  is  good,  buying  is  more 
liberal  in  these  sections.  But  the  effect  is  not  entirely 
local.  Crop  conditions  have  their  effect  on  distant 
parts  of  the  country.  The  grocer j^  jobber  who  oper- 
ates only  in  central  New  York  must  consider  the 
wheat  crop  of  the  West  and  the  cotton  crop  of  the 
South  as  factors  to  reckon  with  in  studying  business 


THE  SELLING  FIELD  9 

conditions  generally  and  their  effect  on  his  territory. 
Full  reports  on  crop  conditions  are  issued  regularly  by 
the  Bureau  of  Crop  Estimates  of  the  Department  of 
Agriculture. 

8.  Other  guides  to  business  conditions. — An  excel- 
lent guide  to  business  conditions  is  found  in  the  pro- 
duction of  pig  iron.  Iron  is  of  such  universal  use  that 
tlie  amount  of  production  reflects  the  economic  condi- 
tion and  buying  power  of  the  population  as  a  whole  in 
the  same  manner  as  does  the  crop  condition.  Other 
evidences  of  prosperity  or  its  opposite  may  be  found 
in  the  amount  of  bank  clearings,  and  in  the  balance  of 
trade  as  evidenced  by  the  discount  rate  between  local 
cities  and  financial  centers.  Then,  too,  the  conditions 
in  specific  industries  must  be  considered.  For  in- 
stance, during  the  latter  part  of  1916,  mining  sections 
such  as  those  of  nortliern  ^lichigan  and  Butte,  were 
exceedingly  prosperous  while  in  the  lumber  sections 
of  the  Xorthwest,  business  was  dull. 

It  is  not  difficult  to  keep  informed  on  business  con- 
ditions if  one  will  read  intelligently  the  financial  page 
of  the  average  metropolitan  newspaper.  Informa- 
tion obtained  from  this  source  serves  as  an  excellent 
check  upon  the  reports  of  traveling  salesmen,  for 
salesmen  are  sometimes  inclined  to  report  conditions 
as  bad  to  excuse  their  own  failure  to  get  business. 
A  knowledge  of  market  conditions  from  general 
sources  enables  the  wholesaler  to  judge  whether  or 
not  he  is  getting  his  share  of  business  from  each  sec- 
tion of  his  territorv.     For  more  detailed  discussions 


10  WHOLESALE  MERCHANDISING 

of  the  methods  of  an  analysis  of  business  conditions 
the  reader  is  referred  to  the  chapters  on  Business 
Barometers  in  the  Modern  Business  Text  on  "Invest- 
ment." 

9.  Total  consumption  capacity. — The  total  con- 
sumption of  any  one  of  the  jobber's  commodities  in 
his  territory  may  be  estimated  without  great  diffi- 
culty. A  family  of  four  is  assumed  as  a  unit — con- 
sisting of  father,  mother  and  two  growing  children. 
Then  the  average  family  is  considered  from  the  stand- 
point of  nationality  and  station  in  life.  With  these 
factors  as  a  basis,  a  preliminary  investigation  is  made 
in  various  parts  of  the  territory  to  find  out  how  much 
of  a  certain  product  in  the  jobber's  line  is  used  by  such 
a  standard  family.  By  carrying  the  investigation  far 
enough  to  obtain  results  that  are  uniform  and  reliable, 
an  average  consumption  capacity  is  deduced.  For  in- 
stance, in  one  section  of  Greater  New  York  it  has  been 
found  that  the  average  consumption  of  laundry  soap 
on  the  part  of  American,  German  and  Irish  families 
in  homes  in  which  the  family  washing  is  done  at  home, 
is  about  104  cakes  per  hundred  families  per  week. 

After  obtaining  the  average  consumption  capacity 
by  groups,  according  to  nationality,  station  in  life, 
etc.,  it  is  easy  to  get  the  total  capacity  by  sections  of 
territory.  The  United  States  Census,  together  with 
the  Abstract,  forms  the  basis  of  calculation  and  this 
can  be  brought  up  to  date  by  estimating  probable 
changes.  This  can  in  some  instances  be  checked  by 
state  census  reports.  The  jobber  should  estimate  the 
current  distribution  of  business  among  the  various 


THE  SELLING  FIELD  11 

jobbers  operating  in  the  territory  and,  if  he  is  already 
in  business,  match  his  own  sales  against  the  maximum 
or  consumption  capacity  in  order  to  determine  what 
percentage  of  the  total  volume  he  is  securing. 

Various  other  agencies  will  be  of  service  in  gather- 
ing these  data.  No  one  jobber  could  afford  to  go  to 
the  expense  of  determining  from  original  investiga- 
tions the  exact  consumption  capacity  in  each  article  he 
sells.  He  can,  however,  get  sufficient  information  on 
many  products  to  enable  him  to  estimate  it  without 
making  a  complete  survey  of  his  market.  Frequently 
trade  associations  have  reliable  data.  Often  a  manu- 
facturer of  a  single  line  has  compiled  figures  and  is 
willing  to  give  them  out.  Sometimes  information  is 
to  be  had  from  government  reports  or  one  of  the  sta- 
tistical houses,  such  as  Roger  W.  Babson,  Inc.,  of 
Wellesley  Hills,  Mass.  There  is  a  more  detailed  dis- 
cussion of  this  subject,  from  the  standpoint  of  adver- 
tising, in  the  Text  on  "Advertising  Campaigns." 

10.  Condition  in  the  jobber's  own  lines. — Next  in 
importance  to  general  conditions  are  those  to  be  found 
in  the  trade  itself.  Is  the  market  growing  or  shrink- 
ing? Take  the  automobile  supply  business  as  an  ex- 
ample. It  is  easy  for  the  jobber  to  judge  the  market 
because  he  can  readily  obtain,  from  the  state  official 
who  issues  automobile  licenses,  the  figures  for  present 
and  past  years  so  that  he  may  know  exactly  how  fast 
the  sale  of  automobiles  is  increasing  in  the  state  and 
within  his  radius  of  operation. 

11.  Study  of  the  consumer. — The  jobber  will  not 

XIX-3 


12  WHOLESALE  MERCHANDISING 

study  the  consumer  quite  in  the  same  detail  as  the  re- 
tailer would  study  him  but,  nevertheless,  both  manu- 
facturer and  jobber  cater  ultimately  to  the  consumer 
and  therefore,  each  must  know  the  consumers  as  a 
class,  if  not  individually.  Goods  are  made  for  the 
consumer,  not  for  the  jobber  or  retailer,  and  so  every 
step  in  distribution  must  be  planned  from  a  knowl- 
edge of  the  needs  of  the  consumer. 

In  making  such  a  survey  the  jobber  divides  his  ter- 
ritory into  sections  and  then  analyzes  each  section 
according  to  the  various  sources  of  income.  He  esti- 
mates how  many  people  or  families  there  may  be  in 
each  section  dependent  upon  agriculture  for  a  living, 
how  many  are  engaged  in  manufacturing  and  the 
number  in  every  other  form  of  activity  in  which  there 
may  be  any  appreciable  number.  The  average  earn- 
ing power  of  each  group  as  well  as  the  totals  by  groups 
is  estimated,  and  any  factors  affecting  stability  of  in- 
come, such  as  labor  conditions,  are  taken  into  consid- 
eration. Then  comes  a  consideration  of  the  inherent 
characteristics  of  consumers  by  classes,  as  determined 
by  nationalities  and  mode  of  living.  The  jobber 
should  attempt  to  push  those  goods  which  he  is  sure 
will  satisfy  a  known  or  predetermined  demand.  Very 
often  the  consumer  will  have  to  be  educated  up  to  the 
point  of  appreciating  the  need  and  uses  for  a  given 
article.  More  often,  however,  thru  the  forces  of  na- 
tional advertising,  the  consumer  already  desires  the 
article  but  the  machinery  of  distribution  is  not  prop- 
erly organized  to  get  the  article  to  him  when  he  wants 


THE  SELLING  FIELD  13 

it  most.  In  taking  on  s  new  line,  the  wholesaler  often 
loses  heavily  because  he  is  making  a  gamble  on  the  pre- 
cise demand  for  the  class  of  goods  and  its  appeal  to  the 
consumer.  jMuch  of  this  loss  could  be  eliminated  if  he 
would  be  guided  in  his  buying  by  an  intimate  knowl- 
edge of  the  consumers'  wants  and  the  amounts  which 
they  are  ready  to  spend  upon  the  commodity  in  ques- 
tion. 

Frequently,  the  jobbers  of  a  section  combine  in  this 
work,  as  was  the  case  in  Council  Bluffs,  Iowa,  during 
1916,  when  all  the  jobbers  thru  their  trade  associa- 
tion united  in  carrying  on  a  sun  ey  of  the  territory  to 
learn  market  conditions  for  their  commodities.  The 
time  is  coming  rapidly  when  there  will  be  a  spirit  of 
cooperation  among  the  competing  jobbers  so  that  all 
may  profit  by  such  data  without  the  great  expense  of 
getting  it  individually. 

In  some  cities  the  task  of  analyzing  retail  trade 
conditions  has  been  assumed  by  the  retail  trade  de- 
partment of  the  local  chamber  of  commerce,  and  with 
effective  results.  Many  believe  that  the  commercial 
survey  of  a  community  should  be  the  first  task  of  the 
commercial  organization  of  the  city. 

12.  iStudy  of  the  retailer. — Obviously  the  first  thing 
the  modern  jobber  does  in  sizing  up  the  retail  situa- 
tion is  to  make  a  list  of  all  dealers  in  his  line  within 
the  selected  territory.  A  card  catalog  system  classi- 
fied by  towns  is  the  most  suitable.  In  order  to  main- 
tain the  record  of  per  capita  distribution  to  the  con- 
sumer, the  wholesaler  must  keep  his  dealer  record  up 
to  date  and  include  in  it  not  only  the  dealers  to  whom 


14.  WHOLESALE  MERCHANDISING 

he  already  sells,  but  all  other  dealers  in  his  territory. 
Very  often  a  low  distribution  to  the  wrong  class  of 
stores  will  bring  about  the  failure  of  an  otherwise 
commendable  sales  campaign. 

In  order  to  secure  accurate  information  of  the  ap- 
pearance of  new  dealers  in  the  field  and  the  exit  of  old 
dealers,  it  is  necessary  to  adopt  a  quarterly  or  semi- 
annual survey  of  the  whole  field,  covering  every 
dealer.  Such  a  survey  is  most  efficiently  and  eco- 
nomically conducted  by  having  the  jobber's  salesmen 
call  on  all  dealers  at  given  periods.  Each  salesman 
should  be  supplied  with  a  complete  list  of  names  and 
addresses  of  dealers  at  the  time  of  the  last  survey.  A 
study  of  those  reported  out  of  business  will  give  val- 
uable ideas  as  to  the  trend  of  general  business  condi- 
tions in  the  territory. 

13.  Classification  of  retailers. — The  record  of  each 
dealer  should  show  the  form  of  organization  followed 
— whether  a  sole  proprietorship,  partnership  or  cor- 
poration ;  the  officers  of  the  company,  a  brief  history  of 
the  business,  the  capital  invested,  the  amount  of  busi- 
ness done,  the  promptness  with  which  bills  are  paid, 
and  something  of  their  business  policies,  such  as  the 
class  of  business  to  which  each  caters.  It  is  equally 
important  to  classify  retailers  according  to  the  cost  of 
delivering  goods  to  them.  This  is  generally  done  by 
means  of  a  separate  tab  system  on  the  cards  to  segre- 
gate different  sections  of  the  territory  according  to 
freight  rates  and  according  to  the  time  required  for 
delivery.    The  nature  of  the  wholesaler's  business  and 


THE  SELLING  FIELD  15 

his  policies  may  dictate  the  necessity  for  other  facts 
regarding  the  retailers.  Some  wholesalers,  for  in- 
stance, in  an  attempt  to  get  new  business  and  even  in 
order  to  hold  old  business,  offer  easy  credit  terms  and 
naturally  cater  strongly  to  retailers  who  are  "slow 
pay,"  even  tho  they  may  not  realize  the  loss  which 
such  a  policy  is  likely  to  incur.  Frequently,  if  the 
facts  are  met  squarely,  such  jobbers  have  little  on 
which  to  appeal  for  business  than  a  willingness  to 
allow  long  credits.  Such  jobbers  have  only  them- 
selves to  blame  for  the  bad  credit  conditions  of  which 
they  complain  so  bitterly.  Other  jobbers  demand 
that  bills  be  met  promptly  and  cut  off  the  credit  of 
the  retailer  who  will  not  do  so.  They  realize  that  it 
is  useless  for  them  to  bother  long  with  the  chronic  de- 
linquent. Various  other  facts  regarding  each  retailer 
should  be  collected,  as  follows : 

(a)  Does  the  retailer  buy  mainly  from  jobbers  or 
is  he  trying  to  go  direct  to  the  manufacturer? 

(b)  Does  he  buy  in  large  or  small  quantities? 

(c)  How  do  the  various  dealers  in  each  community 
rank  in  effectiveness?  Why  are  some  getting 
stronger,  and  which  are  on  the  decline? 

(d)  What  retailers,  possibly  new  to  the  business, 
have  possibilities  of  development  in  which  the  jobber 
might  cooperate? 

Next,  the  jobber  classifies  the  dealers  as  to  the  prob- 
ability and  feasibility  of  their  being  brought  to  deal 
with  him  in  preference  to  a  competitor.  He  nat- 
urally devotes  his  most  intensive  effort  toward  selling 


16  WHOLESALE  MERCHANDISING 

to  retailers  who  are  in  his  natural  territory  and  he 
considers  this  area  his  primary  market,  his  major 
source  of  revenue  and  profit.  But  the  progressive 
jobber  always  keeps  an  eye  on  his  secondary  market 
with  a  view  to  the  establishment  of  branch  houses  un- 
less the  secondary  market  is,  at  the  same  time,  a  logical 
primary  market  for  other  jobbers.  If  the  secondary 
market  is  also  a  secondary  one  for  other  jobbers,  it 
becomes  a  logical  territory  for  expansion  and  the  job- 
ber will  frequently  do  business  there,  even  at  a  loss, 
in  order  to  create  good-will  upon  which  to  build  a 
branch  business. 

14.  Source  of  information  on  retailers. — In  the 
gathering  of  information  concerning  the  status  of  re- 
tailers in  any  jobber's  territory,  the  wholesale  and 
trade  associations  and  the  trade  magazines  are  able 
and  wilhng  to  lend  valuable  assistance  to  wholesalers 
all  over  the  countr}\  IManuf acturers  frequently  com- 
pile data  secured  in  developing  their  marketing  plans 
and  those  who  operate  thru  jobbers  are  anxious  to 
share  these  data  with  them.  After  all,  however,  the 
jobber  and  his  office  executives  must  go  out  and  get 
acquainted  with  their  own  retailers,  for  retailers  gen- 
erally do  not  "go  to  market,"  as  was  customary  fifty 
years  ago.  The  president  of  one  western  grocery 
jobbing  concern  claims  to  know  personally  seventy 
per  cent  of  the  retailers  in  his  territory,  thru  visits  to 
them  in  their  stores.  Trade  trips,  such  as  are  con- 
ducted by  local  jobbing  trade  associations  and  by  the 
wholesale  bureaus  of  chambers  of  commerce,  are  of 


THE  SELLING  FIELD  17 

inestimable  value  if  conducted  along  proper  lines. 

15.  Reports  from  salesmen. — Salesmen  are  of 
course  required  to  report  on  conditions  in  each  re- 
tailer's business  and  in  each  community.  Naturally 
this  can  be  overdone,  for  a  salesman  cannot  be  ex- 
pected to  give  up  every  evening  to  writing  out  long 
reports.  He  feels  his  first  job  is  to  sell  goods  and 
that  he  has  served  his  firm  well  when  he  has  put  in  a 
good  day's  work  as  a  salesman.  Yet  it  is  a  fact  that 
the  average  jobber's  salesman  wastes  much  time  dur- 
ing the  day  waiting  for  customers  or  train  connections, 
and  in  addition  to  this  a  little  evening  time  can  easily 
be  used  to  furnish  with  each  order  a  few  salient  points 
regarding  the  dealer  in  question.  Some  houses  find 
it  best  to  provide  a  series  of  printed  questions  which 
can  usually  be  answered  by  "Yes"  or  "No,"  while 
others  prefer  to  supply  a  daily  report  blank  without 
questions  on  which  the  salesman  can  give  a  running 
account  of  anything  of  interest  to  the  house.  The 
former  method  succeeds  best  with  the  average  sales- 
man. 

16.  Analysis  of  competition. — A  thoro  investiga- 
tion of  present  conditions  in  wholesale  merchandising 
shows  that  relatively  few  jobbers  make  any  system- 
atic analysis  of  their  competition.  Every  progres- 
sive manufacturer  studies  his  competition  from  the 
standpoint  both  of  production  and  distribution.  The 
up-to-date  retailer — particularly  the  manager  of  chain 
stores — also  makes  such  a  study  carefully.  On  the 
other  hand,  many  jobbers  depend  upon  the  casual  re- 


18  WHOLESALE  MERCHANDISING 

marks  of  their  salesmen  to  keep  them  informed  re- 
garding the  activities  of  their  competitors.  The  few 
who  do  check  up  from  time  to  time  the  business  of 
competing  jobbers  are  among  the  really  successful. 
Such  work  need  not  be  considered  as  spying  and,  in 
fact,  should  not  be  carried  to  the  point  where  it  results 
in  following  the  methods  of  others  rather  than  in  de- 
veloping new  ones. 

In  many  lines  competitors  are  coming  to  realize 
that  cordial  cooperation  is  better  than  cut-throat  meth- 
ods. This  desirable  attitude  began  with  the  exchange 
of  credit  data  and  is  spreading  slowly,  so  that  in  some 
trades  information  as  to  general  business  conditions, 
volume  of  business  of  each  jobber,  prices  obtained, 
credit  losses,  cancelations,  claims  and  the  like,  are 
reported  weekly  thru  the  trade  association.  The  sec- 
retary tabulates  the  data,  assigning  a  number  to  each 
jobber  in  place  of  his  name,  and  sends  the  report  out 
to  each  member.  This  enables  each  jobber  to  know 
the  conditions  of  the  business  generally  and  of  his 
business  in  particular,  in  comparison  with  that  of  his 
competitors. 

In  sizing  up  competition,  the  jobber  will  first  list 
the  competitors  in  his  territory.  Investigations  seem 
to  prove  that  the  ideal  market  consists  of  at  least 
three  competitors.  One  investigation  showed  that  a 
single  jobber  in  the  market  did  less  business  than  when 
he  had  a  competitor.  No  doubt  this  was  due  to  the 
fact  that  he  greatly  curtailed  his  service  and  did  not 
try  to  secure  business  with  the  same  amount  of  hard 


THE  SELLING  FIELD  19 

work  as  when  competition  was  keen.  But,  at  the 
same  time,  it  must  be  remembered  that  too  much  com- 
petition, of  necessity,  increases  the  cost  of  distribution. 

The  jobber  should  find  out  the  resources  of  each  of 
his  competitors.  This  information  can  easily  be  ob- 
tained from  any  commercial  agency.  He  can  then 
determine  whether  his  capital  will  enable  him  to  meet 
the  competition  successfully.  The  strength  of  many 
a  jobbing  house  lies  in  its  financial  power  rather  than 
in  its  merchandising  ability. 

The  jobber  may  find  that  the  territory  of  one  or 
two  of  his  competitors  overlaps  his  own  territory  only 
at  certain  points,  and  accordingly  that  competition 
will  be  met  only  at  these  points.  Jobbers'  territories 
frequently  overlap  in  such  a  way  as  to  cut  the  profits 
of  all  concerned.  Incidentally  this  duplication  of  ef- 
fort is  a  burden  to  the  retailer  in  that  too  much  of  his 
time  is  taken  by  salesmen,  and  eventually  the  added 
expense  of  the  duplication  and  overlapping  must  be 
paid  by  the  retailer  and  passed  along  to  the  consumer. 

The  jobber  should  also  know  how  long  each  one  of 
liis  competitors  has  been  established.  From  this  fact 
he  can  determine  whether  they  have  built  up  any  great 
amount  of  good-will.  Good-will  is  one  of  the  strong- 
est assets  of  a  jobber  and  therefore  it  forms  one  of 
the  hardest  kinds  of  competition  to  meet.  In  fact,  the 
only  way  he  can  meet  it  is  by  adopting  some  means  of 
creating  an  even  gi'eater  force  of  good-will  toward  his 
own  house.  It  is  also  important  to  ascertain  whether 
the  business  of  his  competitors  has  increased  or  de- 


20  WHOLESALE  MERCHANDISING 

creased  during  the  period  they  have  been  in  business. 
By  means  of  these  data  he  can  eliminate  those  com- 
petitors who  are  standing  still  or  whose  business  is 
declining,  and  at  the  same  time  know  just  who  are  the 
most  progressive  and  who  will  prove  his  strongest 
competitors. 

17.  Business  policies  of  competitors. — In  the  chap- 
ter which  follows,  the  method  used  by  the  jobber  in 
determining  his  business  policies  is  discussed.  Nat- 
urally this  is  based  largely  upon  an  analysis  of  the 
selling  field  and  of  competition.  In  connection  with 
the  latter,  a  thoro  study  should  be  made  of  the  busi- 
ness policies  of  competitors.  The  jobber  should  size 
up  the  personnel  of  each  competing  firm  and  then 
analyze  its  policies  on  sales,  credits,  dealer  cooperation 
and  the  like.  For  instance,  he  may  find  that  one  com- 
petitor is  inclined  to  overstock  his  customers  while 
another  may  have  built  up  good-will  thru  helping 
the  retailer  turn  over  his  stock  frequently.  The  vari- 
ous questions  of  policy  as  well  as  the  method  of  doing 
business  in  each  department  should  be  tabulated  in 
order  that  the  jobber  may  know  how  to  meet  his  com- 
petitors' good  points  and  how  to  take  advantage  of 
those  in  which  they  are  weak. 

The  modern  jobber  does  not  build  his  business  on 
guesswork.  He  knows  the  facts  before  he  begins. 
Nor  is  he  content  to  continue  his  business  on  the  basis 
on  which  it  was  started.  His  competitors  are  chang- 
ing constantly  just  as  his  selling  field  changes.  The 
weak  competitor  of  yesterda}^  may  be  the  strong  com- 


THE  SELLING  FIELD  21 

petitor  of  tomorrow.  Therefore  the  analysis  of  the 
seUing  field  and  the  competition  must  be  continued  as 
a  basis  for  keeping  the  business  policies  and  methods 
in  harmony  with  changing  conditions.  But  the 
analysis  must  be  used  to  help  the  jobber  to  lead  in  his 
territory,  not  to  follow  or  copy  his  competitors. 

REVIEW 

What  is  the  function  of  a  wholesale  merchant? 

How  are  a  jobber's  activities  confined? 

What  principles  should  guide  the  jobber  in  determining  his 
field? 

What  should  the  jobber  know  about  general  business  condi- 
tions?    About  the  retail  trade? 

How  may  the  jobber  get  the  necessary  information? 

How  ma}'  a  study  of  the  competition  help  the  jobber? 


CHAPTER  II 

MERCHANDISING  POLICIES 

1.  Two  kinds  of  business  policies. — The  jobber's 
business  policies  are  of  two  kinds :  those  that  concern 
his  relations  with  his  employes  and  those  that  con- 
cern his  relations  with  his  customers.  The  former  are 
generally  called  house  policies  and  of  these  the  wage 
system  for  employes  is  an  example.  The  methods  of 
determining  these  house  policies  are  discussed  in 
Chapter  VIII.  Here  we  are  concerned  only  with 
merchandising  or  trade  poHcies  such  as  those  in  re- 
gard to  price,  competition  or  credits.  These  will  rep- 
resent the  code  of  laws  by  which  the  business  is  to  be 
conducted,  and  by  which  all  marketing  questions  are 
to  be  settled. 

2.  Main  sales  appeal. — When  the  Simmons  Hard- 
ware Company  placards  the  country  with  their  slogan 
"The  quality  is  remembered  long  after  the  price  is 
forgotten"  they  are  simply  announcing  their  main 
sales  policy.  Another  announces,  "Our  catalog  is  our 
only  drummer,"  while  a  third  declares  itself  to  be 
"The  house  that  always  has  the  goods  you  want  when 
you  want  them."  A  merchandising  business  without  a 
"big  appeal"  is  without  reason  for  existence,  for  it 
is  without  guidance  toward  the  main  drive  for  busi- 

22 


MERCHANDISING  POLICIES  23 

ness.  Yet  it  is  not  necessaiy  that  this  appeal  be  used 
as  an  advertising  slogan.  Great  care  should  be  used 
in  its  selection,  for  unless  the  jobber  can  live  up  to  an 
announced  standard,  the  appeal  becomes  a  boomerang. 
Every  wholesaler  must  find  his  natural  source  of 
])rofitable  business,  determine  his  main  sales  appeal 
and  from  that  his  main  sales  policy. 

3.  Marketing  policy. — Is  the  marketing  policy  to 
be  a  case  of  "Let  the  buyer  beware"  or  is  it  to  be  the 
more  modem  policy  of  considering  the  jobber  and  the 
retailer  as  cooperators  in  the  distribution  of  mer- 
chandise so  that  whatever  harms  the  retailer  is  deemed 
bad  policy  for  the  jobber?  In  the  latter  case,  the 
jobber  will  not  consider  his  obligation  ended  imtil 
the  goods  have  been  sold  to  the  consumer  at  a  fair 
profit,  so  as  to  turn  over  the  retailer's  stocks  promptly 
and  leave  his  shelves  clean  at  each  season's  end.  In 
fact,  the  obligation  must  go  even  further,  for  the  trans- 
action is  not  closed  until  the  goods  have  proved  satis- 
factory to  the  consumer. 

When  such  a  sales  policy  is  followed  the  jobber  and 
his  sales  force  will  assist  the  retailer  in  selecting  the 
best  goods  in  proper  amounts  for  the  retailer's  trade, 
so  that  he  may  not  become  overstocked.  The  wisdom 
of  this  policy  is  proved  by  the  rapid  development  in 
7'ecent  years  of  Inindreds  of  jobbing  houses  that 
have  followed  it.  One  house  specializing  in  under- 
wear has  gone  so  far  as  to  develop  a  stockkeeping  sys- 
tem for  retailers,  which  forms  an  accurate  guide  to  the 
movement  of  all  stocks  so  that  the  retailer  may  know 


24  WHOLESALE  MERCHANDISING 

which  are  the  best  sellers  and  exactly  how  fast  thej^ 
are  selhng.  The  system  classifies  these  facts  accord- 
ing to  style,  weight,  color  and  size,  and  does  all  with 
little  effort  on  the  part  of  the  retailer  or  his  clerks. 
The  jobber  can  well  afford  to  assist  in  developing  such 
a  system.  It  puts  the  responsibility  for  correct  buy- 
ing where  it  belongs — upon  the  retailer. 

4.  Price  policy. — In  a  retail  business  the  mainte- 
nance of  the  same  price  to  everyone  is  customary  and 
is  not  open  to  question.  In  the  jobbing  field  condi- 
tions are  different  and  vary  with  each  line.  If  the 
Chicago  grocery  jobber  were  operating  only  in  Chi- 
cago, a  uniform  price  would  be  consistent.  But  when 
he  invades  St.  Louis,  he  finds  competitors  who  can 
deliver  from  their  own  warehouses  so  that  there  will 
be  no  freight  expense,  while  the  transportation  cost 
from  his  establishment  in  Chicago  is  a  considerable 
item.  Therefore,  if  he  is  to  compete  successfully  he 
must  pay  the  freight  and  cartage  or  make  a  corre- 
sponding allowance. 

5.  Locality  price. — The  result  is  what  may  be 
called  a  locality  price.  The  Chicago  wholesaler  in 
paying  freight  on  shipments  to  St.  Louis  retailers 
estabhshes  his  price  in  St.  Louis  and  so  cannot  be  said 
to  offer  discriminating  prices.  Nor  can  he  be  accused 
of  discriminating  against  Chicago  retailers,  provided 
it  is  accepted  that  the  retailer  must  consider  the 
freight  as  a  part  of  the  cost  of  his  merchandise.  Con- 
sequently both  Chicago  and  St.  Louis  grocers  get  the 
goods  at  the  same  net  price.     Yet  there  are  many  Avho 


MERCHANDISING  POLICIES  25 

consider  the  freight  allowance  as  a  cut  in  price.    The 
question  is  open  for  debate. 

6.  Competitive  prices. — ^\Vhen  variation  in  price 
goes  beyond  the  allowance  for  freight  and  carriage, 
the  jobber  certainly  abandons  a  one-price  basis  for  a 
competitive  price  and  this  undoubtedly  is  open  to  crit- 
icism. If  competitive  prices  are  allowed,  they  should 
range  within  narrow  limits,  as  otherwise  the  salesmen 
are  encouraged  to  take  advantage  of  one  retailer  to 
make  up  for  the  low  price  to  another.  This  system 
of  pricing  encourages  haggling  and  is  likely  to  cause 
ill-will. 

Competitive  prices  are  most  frequent  in  foodstuffs 
and  heavy  articles  where  freight  charges  are  highest, 
while  in  lines  like  dry  goods  or  drugs,  the  one  price 
policy  is  more  often  observed.  In  competing  in  these 
lines,  the  jobber  considers  all  the  facts  and  then  de- 
termines his  policy  accordingly.  He  is  a  wise  mer- 
chant who  sticks  to  a  one-price  policy  and  does  not 
allow  himself  to  be  carried  into  price-cutting  competi- 
tion. This  has  probably  ruined  more  good  wholesale 
houses  than  any  other  single  thing. 

7.  Loss  leaders. — The  policy  of  a  good  many  job- 
bing firms  in  this  country  of  carrying  certain  lines  of 
goods  as  "loss  leaders,"  follows  the  practice  which  has 
been  current  in  retail  merchandising  for  many  years. 
It  may  be  advantageous  for  the  jobber  to  carry  a  cer- 
tain well-known  line  and  sell  it  to  the  dealer  at  a  loss 
to  gain  prestige  in  the  trade.  The  idea  is  that  if  the 
dealer  will  purchase  the  "loss  leader"  he  will  no  doubt 


5^6  WHOLESALE  MERCHANDISING 

include  in  his  order  many  other  items  on  which  the 
jobber  is  making  a  fair  profit,  and  as  a  result  no  net 
loss  will  be  incurred.  This  policy  is  questionable 
from  an  ethical  standpoint  as  well  as  from  the  stand- 
point of  its  permanent  effect  upon  the  trade.  The 
jobber  therefore  should  consider  all  conditions  which 
surround  his  particular  field  before  adopting  such  a 
sales  policy.  Every  year  finds  fewer  jobbers  follow- 
ing the  practice. 

8.  Diferent  prices  for  different  classes  of  custom- 
ers.— When  the  jobber's  ti-ade  extends  beyond  the  or- 
dinary retailer  the  difficulty  increases.  Some  jobbers 
have  one  price  for  the  regular  retail  trade;  one  for 
chain  stores,  mail-order  houses,  department  stores  and 
other  large  retail  concerns ;  another  for  hotels  and  in- 
stitutions ;  and  still  another  for  goods  sold  to  the  city, 
state  or  Federal  governments.  The  problem  is  one  of 
the  biggest  which  confronts  the  jobber  today  and  his 
policy  regarding  it  must  be  clearly  defined.  The 
jobber's  primary  function  consists  in  supplying  his 
wares  to  the  retailer  only,  for  resale,  at  one  price  to 
all,  except  for  possible  freight  allowance  to  distant 
points  or  on  bulk  articles.  The  nearer  he  can  keep  to 
his  primary  function  the  better  for  him. 

9.  Discount  policy. — A  large  southern  dry-goods 
jobber  remarked  recently: 

My  success  has  been  largely  due  to  the  carefully  worked 
out  policies  which  our  firm  has  in  regard  to  the  giving  of 
discounts,  refunds  for  canceled  orders  and  defective  goods, 
as  well  as  to  the  promptness  with  which  we  settle  all  claims 


MERCHANDISING  POLICIES  27 

against  the  railroad  companies  in  behalf  of  our  dealer  cus- 
tomers. 

One  of  the  most  valuable  features  of  this  policy  is 
that  it  insures  each  dealer's  getting  the  same  treat- 
ment. As  long  as  a  dealer  knows  that  he  gets  the 
same  discounts  as  every  other  dealer  in  his  territory 
he  is  satisfied.  But  the  moment  he  learns  that  some 
competitor  gets  preferential  terms,   trouble  begins. 

10.  Three  kinds  of  discounts. — Discounts  in  the 
jobbing  trade  are  of  three  kinds:  trade  discounts,  cash 
discounts  and  extra  or  special  discounts.  The  origi- 
nal purpose  of  the  trade-discount  system  was  to  make 
it  possible  for  the  wholesaler  to  quote  list  prices  which 
would  be  the  same  as  the  retail  selling  price,  and  which 
would  provide  for  the  retailer's  margin  of  profit  thru 
the  discount.  Discounts  are  used  largely  in  selling 
commodities  where  price  fluctuations  are  frequent. 
Thus  an  article  made  to  sell  for  a  dollar  may  be  listed 
at  $12  per  dozen  with  a  discount  of  25  per  cent  to 
the  trade. 

In  practice,  however,  the  trade  discount  varies 
widely.  Wholesale  stationers  frequently  give  a  series 
of  trade  discounts  totaling  50  to  75  per  cent  and  do 
not  expect  the  retailer  to  get  the  list  price.  In  many 
lines,  of  which  dry-goods  is  an  example,  no  such  trade 
discounts  are  customary.  Wholesale  prices  are 
quoted,  subject  only  to  cash  discounts.  The  manu- 
facturer or  jobber  about  to  start  in  business  can  easily 
find  out  what  is  customaiy  in  his  particular  line  by 
applying  to  the  secretary   of  his  trade  association. 

XIX    4 


28  WHOLESALE  MERCHANDISING 

The  tendency  at  present  in  many  forms  of  business  is 
toward  the  elimination  of  trade  discounts  and  the  sub- 
stitution of  wholesale  prices.  ^ 

11.  Cash  discount. — The  cash  discount  was  origi- 
nally given  as  a  premium  to  induce  prompt  pay- 
ment on  sales  of  certain  lines  in  which  long  credit 
was  given.  Thus  in  the  grocery  trade  it  is  custom- 
ary to  give  a  series  of  discounts  with  different  lines. 
One  large  wholesale  grocer  gives  only  30  days'  time 
on  staples  such  as  sugar,  with  one  per  cent  discount 
for  cash  in  ten  days.  On  goods  on  which  there  is  a 
profit,  such  as  canned  goods,  he  gives  60  days'  time 
with  two  per  cent  discount  for  cash  in  ten  days,  while 
on  certain  private  brands  which  he  wishes  to  push,  or 
on  which  there  is  a  better  margin  of  profit,  he  gives 
four  months'  time  with  four  per  cent  discount  for  cash 
in  ten  days. 

12.  Extra  or  special  discounts. — The  cash  discount 
is  a  firmly  established  custom  in  most  lines  of  trade 
and  its  continuance  is  certain,  tho  there  have  grown 
up  about  it  many  trade  abuses.  For  instance,  for 
many  years,  retail  buyers  have  made  strong  drives  to 
obtain  extra  or  special  discounts.  It  has  even  seemed, 
at  times,  that  the  buyer  was  purchasing  discounts  in- 
stead of  merchandise.  The  jobber  who  cuts  his  prices 
by  giving  special  discounts  must  make  up  the  loss 
in  some  way.  Generally,  he  does  this  by  increasing 
his  list  prices  to  the  "discount  buyers"  or  by  giving 
them  merchandise  at  regular  prices  which  another  man 
would  get  at  job-lot  prices. 


MERCHANDISING  POLICIES  29 

13.  Extra  discounts  on  large  quantity  purcliases. 
— Some  buyers  demand  quantity  discounts  on  large 
purchases,  on  the  claim  of  the  saving  to  the  jobber  in 
handling  the  merchandise  in  such  quantities.  As  a 
matter  of  fact,  there  may  conceivably  be  a  saving  of 
one-half  to  two  per  cent,  but  such  a  discount  does  not 
satisfy  the  big  buyer.  He  wants  five  to  ten  per  cent. 
^Nlany  progressive  concerns  refuse  to  give  extra  dis- 
counts for  any  quantity.  This  problem  arises  espe- 
cially with  the  sales  to  chain  and  department  stores 
and  frequently  the  jobber  feels  that  he  must  yield. 
If  he  does,  he  is  likely  to  alienate  the  small  dealer. 
As  the  jobber's  sales  must  be  made  principally  to  the 
independent  retailer,  he  is  a  short-sighted  business 
man  who  builds  his  price  policy  on  any  basis  other 
than  the  best  interests  of  the  one  on  whom  he  must 
depend  for  the  larger  part  of  his  business. 

14.  Extra  discounts  on  drop  shipments. — Similar 
to  the  quantity  discount  is  the  practice  of  allowing  dis- 
counts on  "drop  shipments,"  that  is,  on  goods  shipped 
direct  from  the  manufacturer  to  the  retailer.  The 
large  retailer  maintains  that  such  shipments  allow  a 
considerable  saving  to  the  jobber  and  that  the  saving 
should  be  divided  with  the  retailer.  Tlie  manufac- 
turer frequently  steps  in  and  demands  a  higher  price 
from  the  jobber  because  he  is  assuming  a  part  of  the 
jobber's  function;  but  in  this  the  manufacturer  is 
seldom  successful.  The  jobber  in  such  merchandise 
as  heavy  hardware,  building  material  and  other  lines 
where  large  shipments  are  common,  frequently  yields 


30  WHOLESALE  MERCHANDISING 

to  the  retailer  by  giving  him  an  extra  discount  of  five 
per  cent.  In  this,  as  in  the  case  of  ordinary  quantity 
shipments,  it  is  questionable  whether  the  saving  to  the 
jobber  is  as  great  as  it  would  seem.  Unless  the 
amount  of  drop-shipment  business  becomes  a  consid- 
erable part  of  his  total  business,  he  must  maintain  just 
the  same  warehouse  facilities  as  if  the  goods  came  to 
him  and  were  reshipped.  Accordingly  most  jobbers, 
except  those  who  deal  in  a  few  heavy  lines,  refuse  to 
give  special  discounts  on  drop  shipments. 

15.  Credit  policy. — The  question  of  a  uniform 
credit  policy  has  probably  been  debated  more  thoroly 
by  the  various  wholesale  trade  associations  thruout 
the  country  than  any  other  question.  Altho  there 
has  been  progress,  there  does  not  seem  as  yet  to  be  a 
definite  settlement  of  the  question.  However,  the 
credit  department  in  merchandising  is  now  receiving 
the  recognition  which  it  deserves.  While  it  is  true 
that  the  percentage  of  loss  thru  bad  debts  has  been  on 
a  gradual  increase  since  1899,  it  is  now  (1917)  begin- 
ning to  decline.  This  is  due  in  part  to  better  business 
conditions  generally  during  the  last  two  years,  but 
probably  in  a  still  greater  degree  to  the  careful  study 
which  this  department  of  the  wholesaler's  business  is 
receiving  and  to  progress  in  standardizing  credit 
policies. 

First  of  all,  it  is  necessary  that  a  jobber  have  a  defi- 
nite basis  upon  which  he  shall  extend  credit  and  then 
a  credit  policy  which  will  enable  the  credit  manager 
to  stick  to  this  basis.     The  general  practice  in  the 


MERCHANDISING  POLICIES  31 

past  among  wholesalers  has  been  to  perform  the 
function  of  a  commercial  banker  for  his  dealer  cus- 
tomers and,  in  his  eagerness  to  get  business,  he  has 
been  encouraging  the  retailers  in  many  cases  to  be- 
come financially  involved.  As  long  as  the  average 
dealer  knows  that  he  has  unlimited  credit,  he  will  not 
be  careful  in  his  purchases. 

On  the  other  hand,  if  the  jobber  is  to  assume  the 
role  of  commercial  banker,  he  should  charge  a  stipu- 
lated fee  for  the  financial  service.  A  discount  is  given 
to  those  who  pay  cash  for  their  goods  and  for  the  same 
reason  it  would  seem  just  to  charge  interest  to  those 
who  use  the  money  of  the  jobber  overtime.  In  this, 
as  in  many  other  questions  of  policy,  the  jobber  will 
need  the  cooperation  of  other  jobbers,  in  order  to  en- 
force his  policy.  IMany  jobbing  trade  associations 
have  passed  resolutions  on  this  subject,  with  penalties 
for  those  who  break  the  regulations  thus  established. 

16.  Dating  of  invoices. — The  policy  in  regard  to 
the  dating  of  invoices  is  closely  connected  with  the  dis- 
count and  credit  policy.  For  instance,  a  cotton  goods 
jobber  will  sell  a  bill  of  goods  for  delivery  on  the  first 
of  September  and  agree  to  date  the  bill  for  the  first  of 
November  with  a  discount  of  two  per  cent  if  the  goods 
are  paid  for  in  ten  days,  that  is  by  the  tenth  of  Novem- 
ber. This  condition  has  grown  up  in  certain  trades 
where  orders  are  taken  months  in  advance  of  both 
manufacture  and  delivery.  During  1916,  with  busi- 
ness generally  in  a  highly  prosperous  condition,  and 
many  firms  unable  to  fill  all  orders  obtained,  there 


32  WHOLESALE  MERCHANDISING 

came  an  opportunity  for  a  concerted  effort  to  cut 
down  the  term  of  credit  allowed.  In  many  lines, 
wholesalers  were  able  to  reduce  the  period  materially. 
The  policy  of  restricting  credits  and  cutting  down 
"extra  dating"  is  likely  to  continue.  The  jobber  who 
makes  the  most  of  this  opportunity  is  wise;  for  there 
is  no  economic  reason  why  the  wholesaler  should 
finance  the  retailer. 

17.  Trade  acceptances. — Many  wholesalers  are 
making  a  determined  effort  to  get  rid  of  long  credits 
with  the  uncertainties  of  collections,  hy  the  substitu- 
tion of  a  more  general  use  of  the  trade  acceptance. 
This  movement  is  fostered  by  many  wholesalers'  as- 
sociations, and  the  use  of  such  acceptances  is  favored 
by  the  Federal  Reserve  Board.  Member  banks  are 
permitted  to  discount  these  acceptances  at  a  lower 
rate  than  other  forms  of  commercial  paper,  and  gen- 
erally do  so. 

The  advantage  to  the  wholesaler  who  establishes 
greater  certainty  in  his  collections  by  the  use  of  these 
acceptances  is  clear.  The  retailer  may  be  expected  to 
object  because  this  method  of  handhng  accounts  de- 
prives him  of  some  of  the  privileges  to  which  he  has 
been  accustomed,  and  which  he  has  often  abused  in  the 
past.  Under  the  open-credit  system  he  can  postpone 
payment  of  his  bills  for  a  few  days  without  any  pen- 
alty. If,  on  the  other  hand,  he  indorses  a  trade  ac- 
ceptance, he  is  in  the  same  position  as  if  he  had  given 
a  promissory  note  for  the  amount  of  the  invoice.  If 
the  acceptance  is  not  paid  on  the  date  due,  the  bank 


MERCHANDISING  POLICIES  33 

on  which  it  has  been  discounted  will  protest  it.  This 
of  course  will  involve  some  expense  to  the  retailer  and 
will  be  an  injury  to  his  business  prestige.  At  the  same 
time  the  trade  acceptances  will  put  his  purchases  on  a 
spot  cash  basis  and  so  enable  him  to  buy  to  better  ad- 
vantage.^ 

18.  Credit  for  goods  returned. — The  practice  on 
the  part  of  both  retailer  and  consumer  of  returning 
goods,  whether  or  not  they  are  defective,  is  an  ever-in- 
creasing menace  to  both  jobber  and  manufacturer. 
In  many  cases  the  goods  returned  are  unfit  for  resale 
and  the  result  is  that  the  jobber  incurs  an  entire  loss 
unless  he  can  pass  part  of  the  loss  along  to  the  manu- 
facturer. Policies  in  regard  to  the  acceptance  of  re- 
turned goods  differ  with  the  various  lines  and  with 
each  different  manufacturer.  In  the  grocery  line,  the 
jobber  in  nearly  every  case  accepts  the  goods  returned 
and  credits  the  account  of  the  dealer  without  a  ques- 
tion as  to  whether  the  goods  were  defective  or  whether 
the  dealer  merely  found  that  he  had  overpurchased 
and  did  not  want  them. 

The  only  reason  that  can  be  assigned  for  this  over- 
liberal  policy  on  the  part  of  most  jobbers  is  the  fear 
of  the  competition  from  the  otlier  jobbers  in  their  ter- 
ritory. Each  jobber  seems  to  think  that  any  dis- 
agreement which  he  may  have  with  his  dealer  customer 
gives  his  competitors  an  opportunity.  Probably  the 
most  successful  solution  to  this  problem  is  that  of  the 
wholesale  gi'ocers  in  Los  Angeles,  Cahfornia,  who 

1  For  a  fuller  discussion  of  trade  acceptances  see  Modern  Business 
Texts  on  "Credit  and  the  Credit  Man,"  pape  36,  and  "Corporation  Fi- 
nance," chapter  on  Trade  Credit  and  Bank  Loans,  page  78. 


34  WHOLESALE  MERCHANDISING 

thru  their  local  trade  association  placed  an  advertise- 
ment in  a  Los  Angeles  trade  paper.  It  was  headed 
as  follows:  "Manufacturers  are  becoming  stricter 
every  year  in  the  matter  of  accepting  returned  goods. 
It  is  therefore  necessary  for  the  wholesale  grocer  to 
exercise  care  in  the  same  respect.  In  order  that  our 
friends  in  the  trade  may  understand  the  situation  and 
be  able  to  protect  themselves,  we  deem  it  both  just  to 
them  and  to  ourselves  to  record  the  following."  The 
advertisement  then  gives  a  clear  statement  of  policy 
toward  the  return  of  goods,  describes  definitely  all  re- 
strictions of  such  privilege,  and  sets  forth  plainly  and 
frankly  the  requirements  which  must  be  met  by  all 
dealers  who  wish  to  make  returns.  Thus  a  uniform 
policy  is  established  and  the  retailer  knows  exactly 
how  to  deal  with  the  jobbers  in  his  territory. 

19.  Other  business  policies. — The  jobber  must  have 
well-defined  policies  in  regard  to  advertising,  dealer 
cooperation,  manufacturing,  semi- jobbing  and  the 
like.  These  questions  can  best  be  treated  in  connec- 
tion with  succeeding  chapters  on  the  organization  of 
corresponding  departments. 

REVIEW 

Why  do  you  consider  it  desirable  to  determine  trade  policies 
as  definitely  as  possible  before  beginning  business? 

What  factors  determine  the  price  policy  of  a  jobbing  house? 
Under  what  circumstances  would  you  give  special  discounts  ? 
What  are  discounts  on  drop  shipments? 
Why  should  a  jobber  scrupulously  live  up  to  his  trade  policies? 


CHAPTER  III 

ORGANIZING  AND  FINANCING  THE  BUSINESS 

1.  Early  forms  of  organization. — An  investigation 
into  the  history  of  many  prominent  jobbing  houses 
shows  that  the  majority,  as  one  jobber  remarked, 
"  'just  growed,'  hke  Topsy."  This  same  man  adds 
"We  are  more  or  less  a  family  affair,  or  a  two- 
family  affair.  While  we  settle  most  questions  by 
consultation,  yet  it  is  not  always  possible  to  an-ange 
a  conference  and  each  one  of  us,  therefore,  is  called 
upon  to  render  independent  decisions.  In  such  cases, 
we  find  our  respective  authorities  frequently  overlap 
and  confusion  results." 

As  a  matter  of  fact,  the  market  for  almost  all  kinds 
of  merchandise  has  been  so  great  in  the  past  that 
wholesalers  have  been  far  more  concerned  with  secur- 
ing goods  and  filling  orders  than  with  the  organiza- 
tion of  their  business  machinery.  The  jobber  has 
been  in  such  close  personal  touch  with  the  trade  and 
with  every  department  of  his  organization  that  he 
could  succeed  with  it  as  a  "one-man"  type  of  business. 
Considering  the  enormous  volume  of  business  trans- 
acted and  the  small  percentage  of  expense,  his  profits 
were  so  large  in  proportion  to  his  expenses  that  he  did 
not  need  to  watch  each  detail  of  his  organization  for 
opportunities  to  increase  its  efficiency, 

35 


36  WHOLESALE  MERCHANDISING 

In  recent  years  conditions  have  changed.  In  many 
old  firms,  the  partners  are  no  longer  able  to  stand  the 
strain  of  long  hours  devoted  to  the  details  of  the  busi- 
ness. Expenses  of  doing  business  have  gradually  in- 
creased and  the  margin  of  profit  has  grown  less.  The 
jobber  has  lost  considerable  business  thru  the  develop- 
ment of  chain  stores  and  mail-order  houses  which  buy 
direct  from  the  manufacturer.  He  has  been  put  on 
the  defensive  to  demonstrate  that  his  service  to  the 
manufacturer  and  retailer  is  necessary  and  econom- 
ical. 

2.  Military  tyj^  of  organization. — During  these 
changes  it  was  necessary  for  the  jobber  to  adapt  him- 
self to  conditions  or  fall  behind  in  the  procession. 
He  was  forced  to  add  many  new  departments  to  his 
business,  and  as  he  did  so,  his  organization  outgrew 
the  one-man  type  and  became  departmental.  The 
head  of  each  department  of  the  business  assumed  con- 
trol of  all  work  performed  for  his  department,  re- 
gardless of  its  character.  This  is  termed  the  "mili- 
tary" type  of  organization  and  was  employed  par- 
ticularly in  large  concerns.  Marshall  Field  and  Com- 
pany, in  its  wholesale  department,  was  one  of  the  fii-st 
concerns  to  organize  their  business  on  departmental 
lines.  Each  of  the  forty-five  departments  has  its 
complete  organization — executive,  buying,  selling, 
stockkeejjing  and  accounting —  so  that  it  exercises  all 
the  functions  of  an  independent  mercantile  house,  spe- 
(ciahzed  to  the  extreme.     This  gives  each  department 


ORGANIZING  AND  FINANCING  37 

head,  or  buyer,  wide  power.  In  addition,  a  central 
organization  supervises  the  whole  business. 

In  small  concerns  where  such  a  scheme  would  mean 
a  great  duplication  of  sales  and  clerical  force,  a  plan 
of  organization  has  grown  up  which  is  a  compromise 
between  the  one-man  type  and  the  departmental  type. 
Each  buyer  has  a  certain  amount  of  supervision  over 
the  various  salesmen  who  sell  his  lines,  and  likewise 
over  the  accounting,  receiving  and  shipping  of  these 
goods.  The  organization  is  similar  in  operation  to 
that  of  Marshall  Field  and  Company,  but  it  cannot 
be  so  free  from  friction  because  the  authority  of  dif- 
ferent department  heads  is  likely  to  overlap. 

3.  Fmictional  type  of  organization. — The  out- 
growth of  this  is  the  functional  organization  which 
retains  the  advantages  without  the  disadvantages  of 
the  departmental  system.  Buyers  generally  are  not 
good  sales  managers,  for  buying  and  selling  are  oppo- 
site types  of  endeavor. 

Within  recent  years,  therefore,  nearly  all  jobbing- 
concerns  have  relieved  buyers  of  the  supervision  of 
the  salesmen  by  the  appointing  of  sales  managers. 
Likewise,  some  officer  has  taken  charge  of  the  office 
force  and  the  warehouse.  More  recently,  in  line  with 
the  de^elopments  in  department  stores,  the  office  of 
merchandise  manager,  in  charge  of  the  buying  and 
stockkeeping,  has  been  created.  Gradually  the 
change  has  been  made  to  functional  organization  and 
tlie  business  has  been  divided  into  the  four  natural 


38  WHOLESALE  MERCHANDISING 

functions — financing,  merchandising,  selling  and 
operating,  the  last  including  the  office  and  the  ware- 
house force.  In  a  recent  bulletin  of  the  National 
Wholesale  Dry  Goods  Association,  shown  on  the  in- 
sert following  page  39  the  functions  are  apportioned 
so  that  the  president  has  charge  of  finances,  the  vice- 
president  of  buying,  the  secretary  of  selling  and  the 
treasurer  of  the  office  and  warehouse.  Since  that  dis- 
tribution of  authority  seems  in  harmony  with  the  best 
practice  of  the  day,  the  present  discussion  of  func- 
tional organization  is  built  on  that  basis.  The  organ- 
ization which  results  is  most  easily  understood  from 
the  chart  facing  page  40. 

4.  Variation  in  detail. — A  study  of  the  organiza- 
tion of  wholesale  houses  shows  that  while  there  are 
certain  functions  to  be  performed  everywhere,  the 
work  is  apportioned  differently  in  different  houses. 
It  is  common  to  combine  the  work  of  the  merchandise 
manager  with  that  of  the  sales  manager.  The  presi- 
dent is  frequently  the  treasurer,  while  the  office  and 
warehouse  are  supervised  by  an  employe.  The  same 
is  true  of  the  subdivisions  of  each  function.  In  some 
houses,  the  traffic  work  is  handled  by  the  shipping 
clerk,  while  in  another  the  traffic  manager  may  be  one 
of  the  highest  paid  men  in  the  concern.  These  are 
cases  of  adjustment  made  to  suit  the  needs  and  per- 
sonnel of  the  individual  house.  The  functions  remain 
the  same  in  each  business  regardless  of  their  distribu- 
tion among  officers  and  employes.  For  the  purpose 
of  this  discussion,  therefore,  it  is  best  to  outline  a  com- 


ORGANIZING  AND  1  IN ANCING  39 

plete  functional  organization  based  on  the  best  pres- 
ent-day practice.  At  the  same  time,  whenever  con- 
ditions permit,  it  is  highly  desirable  to  follow  out  a 
complete  functional  scheme  of  organization,  for  a  con- 
fusion of  functions  always  brings  opportunity  for  mis- 
understanding and  a  weakening  of  supervision. 

5.  Financial  division. — The  first  function  of  the 
financial  division  is  to  provide  the  funds  with  which 
the  business  is  to  be  conducted.  To  accomplish  this 
purpose,  the  financial  manager,  who  is  generally  the 
president,  has  charge  of  the  arrangements  for  raising 
capital  for  the  business  when  it  is  organized.  He  es- 
tablishes banking  relations,  attends  to  the  investment 
of  surplus  or  inactive  funds,  and  has  supervision  of 
credits  and  collections.  In  conjunction  with  the  other 
members  of  the  executive  committee,  if  the  business  is 
directed  bj^  an  executive  committee,  he  arranges  the 
budget  for  each  department  and  the  merchandise  plan 
for  the  whole  business. 

6.  Budget. — From  an  experience  extending  over 
a  period  of  years,  the  president  can  estimate  pretty 
closely  the  different  items  in  the  budget  and  so  judge 
the  amount  of  money  required  to  conduct  the  busi- 
ness from  month  to  month.  Great  care  is  exercised  to 
see  that  the  experience  of  the  past  is  representative 
and  that  the  future  is  carefully  estimated.  Business 
conditions  during  191.5  and  1916  were  so  abnormal 
as  to  be  of  little  value  as  a  basis  for  judging  the  fu- 
ture. However,  by  averaging  past  budgets  over  a  pe- 
riod of  years,  allowing  for  any  unusual  conditions. 


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40  WHOLESALE  MERCHANDISING 

considering  known  factors  of  the  future  and  allowing 
a  margin  of  safety,  a  proper  basis  for  building  a 
budget  can  be  reached.  The  following  budget  for  a 
wholesale  dry-goods  concern  is  based  on  an  average  of 
ten  years  rather  than  for  any  individual  year. 

PREARRANGED  FINANCE,  MERCHANDISE,  SALES  AND 
OPERATING  BUDGET, 

COMPILED    BY    WILLIS    P.    MUNGER    OF    THE    BUP.NHA5I-MTJJfGEE-EOOT    DRT-GOODS 
COMPANY    OF    KANSAS    CITY,    MISSOURI 

Percentage  of 
Gross  Sales 

Gross  Sales   $7,500,000  100. 

Cost  of  Merchandise,  Freight  Added 6,112,500  81.5 

GROSS  INCOME 
Revenue  by  Profits  on  Sales  of  Merchandise.  . .   1,256,250  16.75 

Net  Revenue  from  Cash  Discounts  Taken 131,250  1.75 

Total   1,387,500  18.50 

DEDUCTIONS  FROM  GROSS  INCOME 

Office   Expense    60,000                   .8 

Merchandise  Expense   150,000                2. 

Sales  Expense   300,000                4. 

Operating  Expense    240,000                3.2 

Total   Overhead  Expense 750,000  10. 

Discounts  Given   75,000  1. 

Losses,  Bad  Debts  and  Depreciation 63,750  .85 

Net   Interest  Paid 48,750  .65 

Interest  at  5%  on  Capital  Stock 75,000  1. 

Total  Expense   (Fixed) 262,500  3.5 

SUMMARY 

Gross   Income    1,387,500  18.5 

Gross  Deductions   1,012,500  13.5 

Net  Earning  Ovter  5%  on  Capital  Stock      375,000  5. 

Interest  at  5%  on  Capital  Stock 75,000  1. 

Net  Earning  over  5%  on  Capital  Stock 375,000  5. 

Total  Surplus    450,000  6. 

Note: 

Total  Surplus  is  30%  of  Capital  Stock  Investment  of  $1,500,000 

Average   Merchandise    Investment 1,500,000 

Average  Money  Borrowed 1,175,000 

Interest  on  Average  Money  Borrowed  at  4% 47,000 


WHOLESALE  ORGANIZATION 


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ORGANIZIXG  AND  FINANCING  41 

7.  Cheching  the  budget. — One  of  the  functions  of 
the  president  as  financial  manager  is  to  check  the 
actual  operating  results  of  the  business,  month  by 
month,  against  the  financial  budget.  He  naturally 
begins  with  his  own  department  and  compares  actual 
collections  against  the  estimate  in  the  budget.  It  is 
frequently  necessary  to  be  lenient  in  credits,  for  in- 
stance, in  the  wheat  belt,  where  a  bad  crop  season 
may  occur,  tho  good  crops  seemed  assured.  There- 
fore, it  is  necessary  to  watch  collections  closely  and 
to  revise  the  budget  frequently  in  order  that  it  may 
be  of  value. 

In  the  case  of  the  merchandise  section  of  the  budget, 
it  is  not  difficult  to  check  purchases  month  by  month 
against  sales  and  stocks  on  hand.  But  to  be  sure  that 
the  budget  for  merchandise  is  reasonable  and  to  watch 
it  from  month  to  month  to  see  that  the  buying  organ- 
ization is  following,  is  a  task  of  considerable  difficulty. 
Since  the  greatest  loss  comes  from  a  lack  of  attention 
to  a  merchandise  plan,  the  merchandise  commitments 
should  be  regulated  month  by  month  in  advance. 
Sometimes  the  buyer  must  be  allowed  to  make  heavy 
purchases  against  a  rising  market,  and  for  this  the 
financial  manager  must  provide  funds.  This  is  par- 
ticularly true  in  such  lines  as  groceries,  where  the  job- 
ber's profit  comes  largely  from  market  operations, 
that  is,  from  buying  in  the  most  favorable  market. 
But  even  in  such  lines,  many  houses  will  testify  it  is 
possible  to  follow  a  merchandising  plan. 

The  merchandise  section  of  the  budget  must  be 

XIX-5 


42  WHOLESALE  MERCHANDISING 

divided  -to  show  the  exact  amount  of  funds  each 
department  will  require  month  by  month  to  meet  ex- 
penses and  purchases.  This  is  checked  by  the  mer- 
chandise department  as  the  invoices  from  manufactur- 
ers come  in,  and  shows  the  amount  of  goods  that  re- 
main undehvered.  If  a  manufacturer  is  dehvering 
goods  at  other  than  contract  dates,  this  fact  is  noted, 
in  order  that  dehveries  and  invoices  may  tally  with 
the  budget  and  the  fmancial  plans. 

The  sales  budget  is  easily  checked  from  month  to 
month,  for  many  of  its  items,  such  as  salaries  to  sales- 
men, can  be  estimated  accurately  in  advance.  If  the 
salesmen  are  paid  on  a  commission  basis,  there  will  be 
no  special  need  of  checking.  The  main  problem  is  to 
check  the  advertising  budget  regularly  in  order  to 
insure  that  expenditures  are  as  planned.  A  check 
must  be  had  on  expenditures  for  dealer  aids  and  for 
departmental  expenses  in  general. 

Finally,  the  operating  section  of  the  budget  must 
be  checked.  Here  conditions  are  fairly  stable  and,  by 
following  his  past  experience  and  that  of  other  job- 
bers, the  financial  manager  need  have  no  difficulty  in 
preparing  his  plans.  The  statement  of  the  National 
Wholesale  Dry  Goods  Association  on  the  "Cost  of 
Doing  Business"  given  opposite  page  38,  furnishes 
the  sort  of  data  which  the  financial  manager  will  find 

of  much  value. 

8.  Auditing  the  various  reports. — A  statement  of 
the  actual  results  of  the  operation  of  the  business  as 


ORGANIZING  AND  FINANCING  43 

required  in  checking  the  hudget  and  in  carrying  on 
the  work  of  the  financial  department  in  general  is 
usually  supplied  by  the  auditor,  who  is  a  member 
of  the  financial  manager's  force.  These  reports  show 
sales  in  comparison  with  previous  years,  purchases, 
collections,  expenses  and  various  combinations  of  these 
factors  in  order  to  give  a  better  working  knowledge  of 
present  conditions  and  future  tendencies. 

In  one  well-organized  drygoods  house  the  following- 
reports  are  made,  and  the  system  is  representative  of 
good  j^ractice. 

( 1 )  Comparative  daily  statement  of  sales  and  prof- 
its by  departments  and  corresponding  figiu'es  for  same 
day  of  previous  year. 

( 2 )  Weekly  summary  of  the  foregoing  with  added 
figures  showing  totals  so  far  during  month  as  com- 
pared with  previous  year,  and  similar  figures  for 
goods  returned. 

(3)  JNIonthly  report  of  cashier  to  president  show- 
ing exact  expenditures  for  the  month,  for  the  year 
to  date  and  the  average  expense  per  month  for  the 
operation  of  the  financial  division.  This  includes 
salaries,  adjusting  expenses,  collection  expenses,  dis- 
count received  and  given  and  interest  paid  and  col- 
lected. Against  each  average  there  is  set  a  "bogey" 
or  desired  percentage  of  expense  so  that  any  variation 
is  readily  noted. 

(4)  Monthly  report  of  the  cashier  to  the  vice-presi- 
dent, giving  a  summary  of  all  expenses  incurred  in  tlie 
merchandising  division. 


44  WHOI.ESALE  MERCHANDISING 

(5)  Monthly  report  of  the  cashier  to  the  secretary 
giving  a  summary  of  all  expenses  incurred  by  the 
sales  division. 

(6)  JNIonthly  report  of  the  cashier  to  the  treasurer 
giving  a  summary  of  the  operating  expenses. 

(7)  Monthly  summary  of  reports  Nos.  3,  4,  5  and 
6,  prepared  by  the  auditor  for  the  president.  In 
addition,  the  auditor's  report  includes  a  complete 
financial  statement,  showing  quick  assets  and  liabili- 
ties, receipts  and  disbursements,  and  estimated  collec- 
tions and  payments. 

(8)  Merchandise  operating  statement  for  the 
month,  and  monthly  for  the  year  to  date,  by  depart- 
ments. This  is  a  most  complete  report,  and  shows 
everj'^  phase  of  the  conduct  of  each  department.  The 
main  items  are  purchases,  classified  as  received,  un- 
delivered and  on  contract  for  next  year ;  freight  costs ; 
sales;  returns;  profit  above  freight;  average  stock  in- 
vestment and  average  turnover  of  stock,  first  and  last 
of  month.  Against  each  figure  is  set  a  "bogey"  or 
desired  result  and  all  figin-es  are  carried  both  for  the 
month  and  the  year  to  date. 

In  addition,  there  is  a  continual  checking  of  records 
thru  the  house.  For  instance,  all  purchasing  and  sell- 
ing invoices  are  checked  on  a  non-listing  adding  ma- 
chine. All  cash  expenditures,  entries  in  the  cash 
books,  journals,  general  ledger  and  monthly  trial  bal- 
ances are  also  checked  over  by  the  auditor  and  his 
assistants.  In  addition  to  this,  the  whole  business 
should  be  audited  periodically  by  a  public  accountant. 


ORGANIZING  AND  FINANCING  45 

9.  Credit  department. — The  credit  manager  and 
his  assistants  divide  the  jobber's  temtory  into  sections 
and  each  man  handles  the  accomits  in  his  own  section. 
Information  on  credit  risks  is  gathered  as  described 
in  the  jNIodern  Business  Text  on  "Credit  and  the 
Credit  ^lan."  This  information  is  entered  on  cards 
which  are  filed  geographically.  A  clerk  is  emploj^ed 
to  keep  these  files  up  to  date  and  to  type  inquiries  for 
trade  experiences  from  other  jobbers  and  from  mer- 
cantile agencies.  The  orders  from  salesmen  after 
they  have  been  checked  by  the  sales  manager  and  the 
departments  concerned  go  to  the  credit  man  in  charge 
of  the  section  in  which  the  customer  is  located.  He 
investigates  the  applicant,  and  if  his  credit  standing 
is  satisfactory,  the  credit  is  authorized. 

10.  Collecting  past-due  accounts. — Each  credit 
man  has  charge  of  the  collection  of  past-due  accounts 
in  his  own  territory.  Whenever  statements  are  sent 
to  customers,  copies  go  to  the  credit  department. 
These  statements  are  distributed  by  the  credit  man- 
ager to  his  assistants  according  to  territory.  Previous 
correspondence  on  each  account  is  attached  to  the  cus- 
tomer's statement  and  is  then  filed  in  a  tickler  file 
under  various  dates,  for  attention  as  circumstances 
require.  Each  credit  man  checks  over  his  accounts 
from  day  to  day  and,  before  following  up  any  account, 
lie  has  it  rechecked  against  the  ledgers  and  the  incom- 
ing remittance  mail. 

The  greater  part  of  the  collection  work  is  done  by 
letters   composing  a   form-paragraph   system.     The 


46  WHOLESALE  MERCHANDISING 

credit  man  marks  on  each  customer's  collection  record 
the  numbers  of  the  paragraphs  in  his  correspondence 
manual  to  be  used,  and  his  stenographer  fills  in  the 
details  of  the  amounts  and  other  data  from  the  col- 
lection records.  Of  course  some  accounts  require  per- 
sonally dictated  letters,  and  others  need  the  services  of 
traveling  adjusters.  Carbon  copies  of  all  important 
credit  letters  should  be  sent  to  the  salesman  handling 
each  territory. 

The  problem  of  adjusting  doubtful  accounts  is  a 
big  one,  for  it  is  not  easy  to  collect  the  accounts  and 
retain  the  good-will  of  the  retailer.  A  substantial 
customer  and  a  loyal  trade  friend  is  frequently  made 
of  the  merchant  who  is  in  trouble  and  sees  only  bank- 
ruptcy ahead,  by  helping  him  to  build  up  his  busi- 
ness, and  thus  enabling  him  to  pay  his  bills.  This  is 
especially  true  in  cases  where  jobbers  cooperate  with 
their  customers.  It  is  equally  necessary  that  jobbers 
work  in  harmony  with  one  another;  for  if  one  jobber, 
at  the  first  sign  of  trouble,  throws  the  retailer  into 
bankruptcy,  the  others  can  do  nothing  to  save  him. 
Some  jobbing  houses  have  developed  such  a  reputa- 
tion in  the  trade  for  handling  doubtful  accounts  that 
when  signs  of  difficulty  appear,  other  jobbers  come  in 
and  readily  agree  to  the  suggested  basis  of  settlement. 

REVIEW 

What  are  the  merits  of  the  military  type  of  organization? 

In  what  respects  is  the  functional  type  of  organization  su- 
perior to  the  military  ? 

Under  what  circumstances  would  you  prefer  a  committee  sys- 
tem to  a  system  of  individual  heads  of  departments? 


ORGANIZING  AND  FINANCING  47 

Who  in  general  should  be  in  charge  of  tlie  financial  division 
of  a  business? 

What  statistics  are  needed  to  make  a  budget?  Wliat  checks 
are  desirable  on  the  accuracy'  of  the  budget? 

What  regular  reports  should  the  head  of  a  jobbing  house  re- 
ceive ? 


CHAPTER  IV 

MERCHANDISING  THE  BUSINESS 

1.  Function  of  a  nierchandising  division. — The 
work  of  the  buyers  in  a  jobbing  house  seems  easy.  It 
looks  ahnost  hke  a  clerical  job;  but  it  is  not.  The 
merchandise  division  is  the  heart  of  the  business,  and 
in  every  jobbing  house  the  purchase  of  the  goods  is 
considered  the  most  important  task  of  all. 

The  function  of  the  merchandising  organization  is 
to  provide  such  merchandise  as  is  in  keeping  with  the 
pohcies  of  the  business,  at  a  price  such  that  the  sales 
organization  can  sell  the  goods  at  a  profit.  Quanti- 
ties must  be  regulated  to  meet  all  demands  without 
unnecessary  stock  at  any  time  but  in  such  a  way  as  to 
leave  stocks  clean  at  the  season's  end.  In  order  to  ful- 
fil his  function,  the  merchandise  manager  must  be  a 
real  merchant  himself — not  merely  a  good  buyer;  a 
constructive  worker  and  not  merely  an  opportunist. 
He  must  organize  a  staff  about  himself  to  keep  track 
of  every  factor  in  the  business  which  affects  buying. 

The  division  of  the  merchandising  work  among  the 
various  members  of  the  force  will  be  readily  noted 
from  the  organization  chart  facing  page  40. 

2.  Merchandise  office. — The  merchandising  centers 
in  the  merchandise  manager's   office,   tho   in  large 

48 


MERCHANDISING  THE  BUSINESS  49 

concerns  the  immediate  supervision  of  the  office  itself 
is  given  to  the  assistant  merchandise  manager.  The 
fmiction  of  the  merchandise  office  is  to  keep  all  rec- 
ords necessary  to  the  proper  conduct  of  the  merchan- 
dising division.  These  include  records  of  stock  lim- 
its, turnovers  and  mark-ups  for  each  department,  to- 
gether with  the  buying-control  system;  comparative 
daily  reports  of  purchases,  receipts,  stock  on  hand 
and  unfilled  orders  on  contract;  statistics  on  market 
conditions;  tabulations  of  complaints,  cancellations 
and  returns ;  and  various  other  data  which  may  be  re- 
quired in  each  line  and  in  each  individual  concern. 
The  office  force  includes  a  sufficient  clerical  staff  to 
keep  these  records  up  to  the  minute,  for  material  of 
this  sort  is  worse  than  useless  if  it  is  not  accurate  at 
the  moment  it  is  required.  It  is  here  that  much  of 
the  poor  buying  in  the  mismanaged  wholesale  house 
originates.  The  buyer  and  the  merchandise  manager 
are  misled  by  figures  which  are  either  antiquated  or  in- 
accurate. 

.3.  Buying  control. — The  merchandise  section  of  the 
financial  budget  has  already  been  discussed.  This 
section  is  the  result  of  the  operation  of  a  buying-con- 
trol system  under  the  merchandise  division.  The  pur- 
pose of  the  buying-control  system  is  to  determine  the 
amount  of  capital  to  be  set  aside  for  the  use  of  each 
department  and  to  regulate  its  use  from  month  to 
month  more  or  less  automatically  so  as  to  balance  the 
amount  of  staple  merchandise  handled  on  a  small 
profit  against  the  amount  of  profitable  merchandise. 


50  WHOLESALE  MERCHANDISING 

Such  a  system  varies  somewhat  with  different  hnes 
but  the  principles  remain  the  same.  One  of  the  great- 
est faults  of  the  average  buyer  comes  as  a  result  of 
his  desire  for  volume  regardless  of  profits. 

At  the  beginning  of  the  fiscal  year  the  merchandise 
manager  checks  up  his  business  of  the  preceding  year 
and  estimates  the  amount  of  business  he  can  do  each 
month  in  each  department,  as  well  as  the  number  of 
times  he  can  turn  the  stock.  On  this  basis  an  allot- 
ment of  money  is  made  to  each  department  which  is 
apportioned  to  the  months  of  the  year.  The  de- 
partment managers  are  instructed  accordingly.  As 
orders  go  thru  for  purchases,  they  are  checked  by  the 
merchandise  office  and  the  amounts  subtracted  from 
the  current  buying  allotment.  When  the  buyer  has 
used  up  his  allotment  for  any  given  month,  his 
orders  will  not  be  countersigned  for  further  purchases 
unless  he  gets  a  special  appropriation.  However, 
if  the  sales  in  a  line  increase  over  the  quota  set  by,  say, 
$10,000,  the  excess  amount  is  automatically  allowed 
as  a  special  allotment  or  it  may  be  added  to  the  next 
month's  allotment.  On  the  other  hand,  if  the  buyer 
does  not  use  up  his  allotment  during  any  given  month 
it  may  be  added  to  the  following  month.  Such  a  con- 
dition would  indicate  that  stocks  were  becoming  de- 
pleted by  heavy  sales  against  small  purchases,  and 
therefore  the  added  amount  would  serve  to  bring  the 
stocks  back  to  normal.  If  sales  fall  below  the  quota, 
the  buying  allotment  may  be  correspondingly  cut  to 
prevent  overstocking.     Interest  is  generally  charged 


MERCHANDISING  THE  BUSINESS  51 

the  department  on  all  funds  above  the  regular  allot- 
ment. But,  at  the  same  time,  it  must  be  remembered 
that  such  interest  charge  in  the  final  accounting  is 
net  profit  on  the  year's  operation.  For  instance,  if  a 
department  carries  $200,000  more  average  stock  than 
its  allotment  and  interest  on  this  is  charged  at  five 
per  cent,  this  means  $10,000  net  profit  above  the  regu- 
lar trading  profit  of  the  department. 

The  automatic  buying-control  system  has  been  em- 
ployed for  some  years  in  department  stores,  and  works 
well  there.  In  jobbing  houses  conditions  are  some- 
what different.  In  many  lines  the  market  fluctua- 
tions are  so  radical  and  the  normal  jobbing  profit  is 
so  small  that  the  main  source  of  profit  is  in  market 
operations.  The  shrew^d  jobber  makes  contracts  for 
his  merchandise  for  months,  or  even  a  year  in  advance, 
when  he  feels  certain  of  a  rising  market.  Where  the 
market  promises  to  fall,  he  buys  from  day  to  day. 
Therefore,  the  jobber's  buyer  must  have  considerable 
latitude  and  for  this  reason  many  concerns  object  to 
the  buying-control  system.  On  the  other  hand,  the 
automatic  control  actually  does  what  the  term  indi- 
cates. It  gives  the  merchandise  manager  complete 
control  over  purchases  of  merchandise  so  as  to  encour- 
age making  the  quota  of  sales  and  turnovers  in  each 
line  with  a  minimum  of  stock.  The  buyer  is  always 
free  to  appeal  for  a  special  appropriation  to  take  ad- 
vantage of  market  advances  and  as  the  merchandiser 
is  just  as  anxious  as  the  buyer  to  get  any  such  advan- 
tages, these  requests  are  usually  granted.     The  sys- 


52  WHOLESALE  xMERCHANDISING 

tern  is  coming  more  rapidlj^  into  use,  and  if  it  can  be 
successful  in  the  largest  grocery -jobbing  concerns,  as 
has  been  proved  in  many  instances,  there  is  no  reason 
why  it  should  not  be  applicable  in  every  jobbing  line. 

4.  Indicatmg  slow-selling  lines. — As  an  incidental 
result  of  the  automatic-buying  control  it  is  possible 
to  show  up  the  slow-selling  lines.  The  system  is  not 
in  itself  adequate  for  the  purpose.  One  dry-goods 
jobbing  house  has  a  second  check  which  starts  with 
the  receiving  room.  The  tags  on  cases  of  goods, 
showing  the  lot  number  of  the  goods,  are  made  in  dif- 
ferent colors  to  indicate  the  month  of  the  year  in  which 
the  merchandise  was  received.  When  the  stock  clerk 
selects  merchandise  to  fill  orders,  he  is  instructed  to 
take  always  the  oldest  on  hand.  This  is  made  easy 
for  him  by  the  color  system. 

At  the  beginning  of  each  month  the  merchandiser 
and  the  buyer  check  over  the  stock  and  compare 
quantities  with  the  maximum  and  minimum  stock 
limits.  The  merchandiser  readily  sees  in  what  lines 
there  is  an  overstock  and  what  styles  or  sizes  are  tlie 
slow  sellers.  The  matter  is  then  taken  up  with  the 
sales  manager  and  plans  are  made  to  move  the  slow 
stock  or  the  surplus  stock  bj'-  some  special  sales  effort. 

5.  Selection  of  buyers. — One  of  the  foremost  tasks 
of  the  merchandise  manager  is  the  selection  of  buyers. 
The  final  decision  on  the  emploj^ment  of  each  buyer 
generally  rests  with  the  executive  committee  if  there 
is  one,  or  with  the  president,  because  the  success 
of   the   business    depends    largely   upon   the    ability 


MERCHANDISING  THE  BUSINESS  53 

of  eacli  buyer.  In  most  concerns,  there  is  a  buyer 
for  each  principal  line.  Each  man  has  authority 
within  the  hmitations  of  his  buying  allotments  in  the 
conduct  of  his  work,  because  the  details  of  a  jobbing 
business  are  so  numerous  and  varied  that  the  buyer  or 
department  manager  must  settle  most  questions  with- 
out consultation  with  the  officers. 

]Much  of  the  slow  selling  difficulty  can  be  prevented 
by  organizing  a  job  department  and  by  penalizing 
each  buyer  for  merchandise  carried  after  a  certain  pe- 
riod. The  merchandise  is  taken  away  from  the  de- 
partment at  a  50  per  cent  reduction  and  given  to  the 
job  department  at  the  reduced  price  for  resale. 

6.  Essential  qualifications  of  the  buyer. — The  suc- 
cessful buyer  has,  of  course,  the  general  traits  of  char- 
acter which  make  success  in  any  form  of  endeavor. 
In  addition,  he  must  have  a  natural  capacity  for  detail 
and  for  study.  He  is  an  expert  on  the  kinds  of  goods 
which  he  buys  and,  undoubtedh^  he  has  to  know  more 
about  them  than  anyone  else  who  handles  them  ex- 
cept the  manufacturer.  He  makes  a  study  of  all  the 
conditions  surrounding  the  production  of  the  raw  ma- 
terials and  the  methods  of  manufacture  used  in  chang- 
ing this  raw  material  into  the  finished  product  offered 
for  liis  inspection  and  purchase.  In  gaining  this 
knowledge,  he  studies  the  methods  of  the  various  pro- 
ducers and  manufacturers,  and  gathers  useful  infor- 
mation as  to  what  he  may  expect  from  each  one  and 
from  his  goods. 

In  sliort,  it  is  necessary  for  the  buyer  to  know  his 


54  WHOLESALE  MERCHANDISING 

line,  the  buying  market  and  the  buying  methods,  what 
U'oods  he  has  on  hand  from  day  to  day  and  how  these 
goods  are  moving. 

7.  The  buying  market. — When  a  buyer  enters  the 
market  he  asks  himself  these  questions :  Who  are  the 
manufacturers  of  the  goods  that  I  want  to  buy? 
How  far  can  I  rely  on  each  of  them?  Wliere  can  I 
secure  the  highest  qualities  of  goods?  Where  can  I 
find  the  cheap  lines?  Who  can  be  depended  on  for 
prompt  deliveries?  Who  can  best  be  trusted  to  fill 
emergency  orders  ?  What  manufacturers  are  success- 
fully advertising  their  products?  Which  ones  are 
actively  cooperating  with  the  retailer?  What  atti- 
tude shall  I  adopt  toward  new  lines?  Which  manu- 
facturers are  going  to  give  me  the  heartiest  coopera- 
tion? In  other  words,  he  makes  a  complete  analysis 
of  all  the  sources  of  supply. 

In  most  manufactured  lines,  there  are  centers 
where  the  majority  of  the  manufacturers  are  repre- 
sented. At  certain  seasons,  depending  on  the  nature 
of  the  merchandise  to  be  purchased,  the  buyers  visit 
the  various  centers,  look  at  new  lines,  study  the  mar- 
ket generally  and  make  their  purchases. 

8.  Buying  methods. — Altho  some  buyers  visit  the 
markets,  even  those  in  foreign  countries,  a  large  per- 
centage of  the  buying  is  done  at  home  from  brokers 
and  traveling  salesmen.  It  is  always  to  the  advan- 
tage of  the  buj^er  to  give  each  salesman  a  courteous 
hearing.  A  good  salesman  frequently  has  informa- 
tion that  might  be  lielpfiil  to   the   buyer.     Again, 


MERCHANDISING  THE  BUSINESS  55 

^\•hen  the  salesman  has  anything  of  particular  interest 
or  special  value  to  olfer,  he  naturally  turns  toward 
the  men  who  have  treated  him  well.  The  buyer  may 
drive  a  hard  bargain  w^ith  the  salesman  but  so  long  as 
the  buyer  is  fair,  he  will  find  that  this  fairness  has  a 
material  value,  especially  in  assuring  him  of  the  coop- 
eration of  the  salesman  in  selecting  most  desirable 
styles,  securing  rush  deliveries  and  in  getting  personal 
interest  and  attention. 

A  question  which  frequentlj^  confronts  the  buyer 
is  whether  to  distribute  his  purchases  among  many 
different  concerns  or  confine  them  to  a  few.  As  a 
rule,  it  has  been  found  that  by  concentrating  them  so 
as  to  make  the  amount  of  business  given  to  each  man- 
ufacturer worthy  of  special  attention,  better  relations 
are  established  with  the  manufacturers.  This  should 
not  prevent  the  buyer  from  keeping  in  constant 
touch  with  the  prices  of  competing  salesmen,  for 
sometimes  salesmen  get  their  highest  prices  from  their 
closest  friends ,  much  as  that  is  to  be  regretted. 

The  question  of  how  far  to  go  with  advertised 
brands  and  how  far  with  private  brands  is  usually  one 
which  is  predetermined  for  the  buyer  or  whoever  is 
responsible  for  the  policies  of  the  house.  The  same  is 
true  of  guarantees  as  to  products,  net  weights  and  the 
like. 

In  order  to  specify  quantity  and  dehvery  dates  in- 
telligently, the  buyer  must  know  all  the  facts  concern- 
ing the  stock  on  hand.  Therefore,  the  stock-records 
for  the  goods  which  he  buys  are  placed  directly  un- 


56  WHOLESALE  MERCHANDISING 

der  his  control.  In  some  cases  the  buyer,  and  in 
others  the  merchandise  manager,  keeps  a  record  of 
each  manufacturer's  goods  to  ascertain  whether  it  pays 
to  deal  with  that  manufacturer.  Such  a  record  shoA\s 
how  the  goods  have  moved,  the  satisfaction  they  have 
given  and  the  profit  on  handling  them.  Of  course, 
each  buyer  has  also  a  complete  record  of  the  operation 
of  his  department.  INIodern  merchants  realize  the 
wisdom  of  giving  each  buyer  all  the  figures  indicative 
of  the  success  of  each  buyer's  work. 

9.  Authority  of  the  buyer. — As  a  rule,  the  buyer 
relies  entirely  on  his  own  judgment  in  his  purchasing, 
consulting  the  merchandise  manager  only  when  un- 
usual circumstances  arise  or  when  he  wishes  to  ven- 
ture outside  the  ordinary  scope  of  his  authority.  If 
he  gets  into  trouble  in  handling  a  line  he  will  consult 
the  merchandiser,  just  as  he  does  when  he  sees  a  mar- 
ket opportunity  for  which  he  needs  an  extra  allotment 
of  funds.  Most  merchandise  managers  will  back 
their  buyers  in  any  transaction  within  reason  for  any 
amount  which  they  may  consider  necessary  for  proji- 
erly  conducting  their  respective  departments. 

10.  Discounts. — The  subject  of  discounts  is  one  to 
which  the  buyer  should  give  careful  study.  A'VTiile  it 
is  always  an  advantage  to  secure  as  large  a  discount 
as  possible,  it  behooves  the  buyer  to  remember  that 
the  appeal  should  not  be  made  until  after  all  ques- 
tions of  quality,  price,  delivery  dates  and  the  like 
have  been  agreed  upon.  Yet  it  must  not  be  forgot- 
ten that  the  cash  discount,  taken  frequently,  almost 


MERCHANDISING  THE  BUSINESS  57 

equals  the  total  net  profit.  In  the  wholesale  dry- 
goods  business,  the  average  discount  received  is  l"/4 
per  cent  while  many  concerns  are  content  with  2/{>  per 
cent  net  profit.  Others  obtain  even  less.  Therefore, 
a  serious  responsibility  rests  with  the  buyer  to  obtain 
as  large  a  cash  discount  as  is  consistent  with  the  other 
factors  of  buying. 

11.  Pricing. — The  job  of  fixing  the  sales  prices 
falls  to  the  buyer.  He  goes  over  the  price  book  of 
staple  lines  from  day  to  day  and  revises  the  list  prices 
as  conditions  require.  In  the  case  of  special  pur- 
chases, he  puts  the  list  price  or  mark-up  percentage  on 
each  invoice  as  it  is  received,  and  the  receiving  depart- 
ment tags  it  accordingl}\  The  profit  and  cost  depart- 
ment should  exercise  some  authority  in  connection 
with  pricing  along  with  the  merchandising  plan.  If 
the  desired  mark-up  is  not  being  maintained,  it  is  the 
function  of  this  department  to  call  attention  to  the 
fact. 

In  many  lines,  the  gep^^al  price  level  is  determined 
by  market  quotations  and  in  all  cases  is  fairly  well 
regulated  by  the  forces  Cf  competition.  If  the  price 
on  a  particular  line  is  too  high,  the  salesmen  will  not 
try  to  sell  it.  After  all,  merchandise  is  worth  only 
what  it  will  bring,  and  therefore  it  is  priced  largely 
according  to  competition  and  market  conditions. 

The  question  is  sometimes  raised  whether  the 
jobber  is  entitled  to  take  advantage  of  the  opportu- 
nity to  mark  up  merchandise  which  he  has  bought  in  a 
favorable  market.     During  1916,  the  price  of  linens 

XIX-6 


58  WHOLESALE  MERCHANDISING 

advanced  rapidly  due  to  conditions  in  Europe.  Some 
foresighted  jobbers  stocked  heavily  during  1915  so 
that  linens  which  cost  them  seventy-five  cents  a  yard 
were  worth  double  that  and  could  not  be  replaced  for 
less.  Such  jobbers  made  a  handsome  profit  by  mark- 
ing up  their  prices  from  week  to  week  to  agree  with 
the  market  quotations,  and  they  were  entirely  justi- 
fied in  doing  so.  Upon  the  settlement  of  the  Euro- 
pean war,  prices  of  linens  will  doubtless  fall,  and  many 
a  jobber  is  likely  to  be  caught  with  linens  that  cost  him 
a  dollar  and  a  half  a  yard  and  which  will  be  worth  only 
a  dollar.  In  that  case,  competition  will  force  the 
jobbers  to  cut  their  prices  and  take  their  losses,  be- 
cause every  merchant  knows  that  on  a  declining  mar- 
ket the  sooner  the  losses  are  taken  the  less  they  will 
be.  Therefore  prices  must  be  revised  from  time  to 
time  to  agree  with  the  market  and  the  competition  re- 
gardless of  whether  the  revisions  will  mean  gains  or 
losses. 

12.  Branch  buying  office. — Many  large  wholesale 
houses  maintain  branch  buying  offices  in  each  buying 
center.  For  instance,  every  large  dry-goods  jobber 
maintains  a  branch  office  in  New  York  City.  The 
office  force  of  one  of  these  branches  usually  con- 
sists of  a  head  buyer,  or  manager,  one  or  more  local 
buyers,  clerks  and  stenographers,  an  office  boy  and 
telephone  operator.  In  most  cases,  there  is  a  stock 
room  attached  to  the  office  for  the  temporary  storage 
of  goods.  As  a  rule,  the  buyers  from  this  office  make 
purchases  only  when  directed  to  do  so  by  the  main 


MERCHANDISING  THE  BUSINESS  59 

office.  However,  the  office  serves  as  an  information 
bureau  at  all  times,  since  its  men  watch  market  de- 
velopments, investigate  bargains  and  job  lots,  and  size 
up  new  goods  which  appear  on  the  market. 

This  office  also  serves  as  headquarters  for  buyers 
from  the  home  office  when  they  are  in  the  city. 
In  such  cases,  the  branch  manager  receives  a  state- 
ment as  to  the  lines,  quantities  and  price  ranges 
for  each  buyer  on  his  trip,  and  on  this  basis  the  branch 
manager  becomes  temporarily  the  merchandise  man- 
ager in  charge  of  those  buyers  with  power  to  authorize 
their  purchases.  He  handles  their  mail,  both  incom- 
ing and  outgoing,  and  attends  to  all  detail  work  for 
them  during  the  period  of  their  stay.  The  branch  of- 
fice frequently  sees  to  the  assembling  and  packing  of 
small  purchases,  as  well  as  the  routing  and  shipment 
of  all  purchases  from  that  center. 

13.  Supervisio7i  of  stochheeping. — It  is  a  much  de- 
bated question  whether  stockkeeping  should  be  a 
function  of  the  merchandising  or  of  the  house  man- 
ager. The  purpose  of  stockkeeping  is  to  keep 
track  of  the  merchandise  in  the  house  so  that  orders 
from  customers  may  be  filled  promptly  from  fresh 
stocks.  The  merchandise  manager  is  responsible  for 
having  stocks  on  hand  and,  therefore,  it  seems  logical 
that  he  should  ])e  intrusted  with  the  keeping  of  them. 
Otherwise,  he  may  throw  on  another  department  the 
responsibility  for  shortages  or  surplus  of  stock  due  to 
errors  in  keeping  stock  records.  In  department 
stores,    which    are    in    many    ways    comparable    to 


60  WHOLESALE  MERCHANDISING 

jobbing  houses,  the  supervision  of  stock  rooms  is  dele- 
gated to  the  merchandising  manager ;  this  practice  is 
growing  rapidly  in  wholesale  concerns.  Each  buyer 
supervises  his  own  stock,  under  the  direction  of  the 
merchandise  manager.  However,  the  house  manager 
or  superintendent  inspects  and  regulates  the  physical 
conditions  of  the  stock  rooms  and  the  methods  of  stor- 
age. 

14.  Necessity  for  careful  stochheeping . — It  is  obvi- 
ous that  stocks  must  be  kept  scientifically.  INIer- 
chandise  on  the  shelves,  like  money  in  the  vaults, 
should  be  protected ;  in  fact  it  must  be  kept  even  more 
carefully,  for  stock  nearly  always  depreciates  with  age. 
Therefore,  the  merchandise  manager  must  guard  his 
investments  in  merchandise  by  making  careful  and 
frequent  inventories  of  his  stock. 

To  conduct  his  department  successfully,  he  needs 
an  accurate  record  of  the  movement  of  his  stocks 
from  the  time  they  are  received  until  they  are  shipped. 
Yet  in  few  wholesale  houses  is  it  possible  to  tell  what 
happens  to  individual  purchases  of  merchandise,  or 
even  the  condition  of  the  stock  in  a  given  line.  In 
this  respect,  jobbing  houses  generally  have  much  to 
learn  from  the  few  who  have  installed  modern  stock- 
keeping  systems. 

15.  Stock  rooms. — The  first  problem  in  the  ar- 
rangement of  stock  rooms  is  to  see  that  waste  motion 
is  cut  to  a  minimum.  The  methods  of  industrial 
management  in  routing  material  thru  a  factory,  of 
which  there  is  full  discussion  in  the  Modern  Busi- 


MERCHANDISING  THE  BUSINESS  61 

ness  Text  on  "Factory  and  Office  Administration," 
are  used. 

The  various  floors  are  divided  so  as  to  give  each 
stock  its  proportionate  si^ace.  In  a  large  concern, 
there  are  generally  two  sets  of  stock  in  each  line. 
One  is  the  reserve  stock,  from  which  orders  for  full 
cases  and  unbroken  lots  are  obtained. 

16.  Stoclcheeping  7netliods. — For  each  floor  there 
is  a  head  stockkeeper,  who  is  responsible  for  the  work 
and  who  gives  his  personal  attention  to  the  perpetual 
inventory  and  the  checking  of  incoming  and  outgoing 
goods.  In  each  staple  line,  a  maximum  and  a  mini- 
mum are  set.  It  is  the  head  stockkeeper's  duty  to  re- 
port at  once  any  case  in  which  stocks  exceed  the  maxi- 
mum or  fall  below  the  minimum.  From  time  to 
time  during  stock-taking  periods,  it  is  customary  to 
check  roughly  the  perpetual  inventory  in  order  to 
catch  any  discrepancies.  This  process  is  independent 
of  the  annual  or  semi-annual  inventory. 

The  surest  way  to  insure  a  clean  stock  is  to  work 
thru  it  constantly,  and  the  stockkeeper  must  spend  a 
considerable  part  of  his  time  delving  into  it. 

17.  Perpetual  inventories. — The  numerous  types 
of  perpetual  inventories  in  use  among  wholesalers 
vary  in  detail  but  are  the  same  in  principle.  They 
depend  on  a  card  or  book  system;  the  entries  are 
classified  according  to  items  and  lot  numbers.  Each 
separate  stock  department  operates  its  own  system, 
tho  small  concerns  frequently  employ  one  general 
svstem  for  the  entire  stock. 


62  WHOLESALE  MERCHANDISING 

The  form  of  the  stock  card  is  regulated  by  the  par- 
ticular requirements  of  the  concern.  The  main  points 
to  be  covered  on  the  record  are  the  name  of  the  article, 
the  date  when  entry  is  made,  the  quantity  received, 
tlie  quantity  delivered  and  the  location  of  the  goods 
in  the  stock  room.  In  most  cases,  space  is  provided  on 
the  card  to  show  the  number  of  the  article,  the  manu- 
facturer's name,  the  maxmium  and  the  minimum  stock 
to  be  maintained,  the  balance  on  hand,  and  frequently 
the  size  and  color.  Location  may  include  stock  room 
designation,  showing  the  part  of  the  room  in  which  the 
article  is  stored  and  the  bin  number.  The  important 
thing  in  stockkeeping  is  to  insure  that  all  entries  are 
jjromptly  made. 

If  the  balance  of  any  article  on  hand  is  reduced  be- 
low the  minimum  amount  by  the  last  entry,  it  is  cus- 
tomary to  inspect  the  bin  or  container  of  that  article 
and,  if  necessary,  take  an  actual  count.  An  independ- 
ent check  of  the  stock  record  is  thus  accomplished,  and 
by  taking  the  count  when  the  stock  is  at  its  lowest,  the 
check  is  most  easity  made.  In  cases  where  a  dis- 
crepancy occurs,  there  should  be  an  immediate  investi- 
gation to  determine  the  cause. 

18.  Physical  inventories. — The  semi-annual  physi- 
cal inventory  is  necessary  as  a  regular  check  on  the 
perpetual  inventory.  It  serves  a  further  purpose  in 
that  it  brings  about  an  inspection  of  the  actual  condi- 
tion of  the  stock,  the  way  in  which  it  is  stored,  and  all 
other  points  regarding  it  which  are  not  covered  by  the 
perpetual  or  card  inventory.     Nor  need  the  physical 


MERCHANDISING  THE  BUSINESS  63 

inventor\^  prove  a  burden,  altho  there  was  a  time  wlien 
stocktaking  caused  a  great  deal  of  confusion  and  made 
employes  stay  long  after  hours,  sorting,  counting  and 
checking. 

The  system  used  by  a  large  number  of  wholesalers 
owes  its  success  principally  to  the  fact  that  it  can  be 
operated  simply  and  speedily.  Cards  are  consecu- 
tively numbered,  made  into  pads  and  then  given  to  the 
stock  clerks.  For  each  class  of  articles  a  card  is  made 
out,  on  which  is  recorded  the  nimiber  of  articles  in  the 
class.  This  is  continued  until  the  original  stocktak- 
ing of  each  section,  bin  or  container  is  completed. 
The  cards  are  then  gathered  up  and  checked  against 
the  goods  to  determine  whether  anything  has  been 
overlooked.  After  collection,  the  cards  are  examined 
by  number  to  be  sure  that  none  have  been  lost,  then 
they  are  sorted  according  to  the  data  they  record  by 
catalog  number,  grade,  kind,  style  or  make  of  goods, 
in  readiness  for  the  extension  of  prices  and  the  trans- 
ference to  the  final  summary  sheets.  This  checking 
and  rechecking  insures  accuracy,  without  involving 
any  of  the  confusion  likely  to  arise  from  the  use  of 
most  other  systems. 

It  is  possible  to  use  any  number  of  employes  in 
making  the  inventories  witliout  having  them  interfere 
with  one  another.  Furthermore,  the  inventory  is  so 
subdivided  that  small  mistakes  can  be  corrected 
without  disturbing  the  whole  work.  Any  change  due 
to  the  arrival  of  new  goods  and  their  being  placed 
in  stock,  or  the  taking  of  goods  from  stock  to  fill  or- 


64  WHOLESALE  MERCHANDISING 

ders,  must  be  recorded  on  the  cards  which  bear  the 
count  for  those  goods. 

REVIEW 

What  is  the  work  of  the  buyers?  Of  what  importance  are  the 
records  kept  by  the  merchandise  office? 

Outline  tlie  purchasing  procedure  and  method  of  payment  for 
goods  bought  by  the  merchandising  division  in  department  stores ; 
in  jobbing  houses.  How  does  the  merchandise  manager  keep 
buying  control?     W^hat  is  done  with  slow  selling  lines? 

What  qualifications  should  the  buj'er  have?     How  is  he  chosen? 

To  what  extent  must  the  buyer  study  the  market?  Discuss 
some  of  the  problems  of  successful  buying.  How  far  does  the 
buyer's  authority  go? 

Who  fixes  the  sales  price?  If  a  jobber  buys  goods  before  a 
rise  in  price,  is  he  entitled  to  raise  his  price  with  the  market? 

How  is  a  branch  office  managed  ? 

Why  is  careful  stockkeeping  important?  Discuss  the  pro- 
cedure and  methods  of  stockkeeping. 

AVhat  kinds  of  inventories  are  made?  When?  Why?  De- 
scribe the  system  in  use  by  many  wholesalers. 


CHAPTER  V 

SELLING  AND  SALES  SUPERVISION 

1.  Function  of  the  sales  division. — In  the  days  of 
the  one-man  type  of  organization,  there  was  httle 
supervision  of  the  selling  activities  of  a  wholesale 
house.  Salesmen  were  hired  by  the  proprietor  and 
told  to  call  on  the  trade  in  a  certain  section.  The 
salesman  seldom  heard  from  his  house  except  to  get 
printed  lists  of  price  changes,  and  became  merely  an 
order  taker.  As  a  result,  certain  concerns  felt  that 
more  intensive  selling  could  be  done  by  mail  with  less 
expense  and  built  their  business  accordingly.  Oth- 
ers, spurred  on  by  the  good  work  of  the  salesmen  from 
specialty  manufacturing  concerns,  put  in  modern 
sales  organizations.  Today,  few  jobbing  houses  are 
without  modern  sales  organizations. 

The  primary  study  of  the  market  and  the  deter- 
mination of  the  marketing  policy  have  been  discussed 
in  earlier  chapters  in  connection  with  the  organization 
of  the  business.  It  is  the  function  of  the  selling  di- 
vision to  conduct  the  sales  work  of  the  house  accord- 
ing to  the  predetermined  policies.  This  is  most 
readily  accomplished  by  a  combination  of  personal 
salesmanship  with  advertising  and  the  occasional  use 
of  mail-order  methods. 

65 


66  WHOLESALE  MERCHANDISING 

2.  Application  of  intensive  salesmanship  to  a  job- 
bing business. — Selling  methods  must  depend  on  the 
needs  of  the  business  and  upon  the  amount  that  may 
be  expended  for  selling  work.  When  the  demand  for 
an  article,  such  as  Ivory  Soap,  has  already  been  cre- 
ated, the  salesmanship  need  not  include  intensive 
"missionary"  work.  In  such  cases,  it  is  frequently 
asserted  that  salesmen  need  be  only  ordertakers ;  and 
this  may  be  true.  But  it  is  certain  that  modern  meth- 
ods of  salesmanshij)  may  be  applied  to  increase  the  re- 
sults secured  by  individual  salesmen  and  decrease  the 
expense  of  selling. 

In  some  jobbing  lines,  such  as  coffees  and  teas, 
there  is  room  for  the  highest  type  of  constructive 
salesmanship.  The  selling  of  private  brands  con- 
trolled by  manufacturing  jobbers  is  of  the  same  na- 
ture as  the  selling  of  any  specialty  manufacturer. 
Nothing  prevents  the  jobber  and  his  sales  manager 
from  applying  the  fundamental  principles  of  selling 
and  sales  management  to  their  activities,  tho  condi- 
tions and  lines  may  add  some  difficulty  in  adapting 
these  methods  to  the  jobbers'  work. 

3.  Sales  department  office. — Everything  which 
has  to  do  with  selling  and  with  the  supervision  of  sales- 
men centers  in  the  sales  manager's  office,  tho  here,  as 
in  the  case  of  the  merchandise  manager's  office,  the 
president's  office  keeps  the  statistics  by  means  of  which 
sales  campaigns  are  planned  and  executed  and  the 
work  of  individual  salesmen  stimulated  and  directed. 
The   sales   office   keeps   duplicates    of   most   of   the 


SELLING  SUPERVISION  6T 

operating  records  listed  in  Chapter  III,  such  as 
analyses  of  operating  territory,  comparative  state- 
ments of  purchases  and  sales  and  the  like. 

4.  Sales  plan, — The  decision  as  to  the  sales  plan 
is  a  part  of  the  general  work  of  founding  the  busi- 
ness, and  is  included  in  the  statement  of  policies.  It 
remains  now  to  put  it  into  operation.  Knowing  the 
extent  of  the  territory,  the  number  of  dealers  to  be 
called  upon,  the  average  number  that  a  salesman  can 
see  in  a  day  and  the  frequency  with  which  calls  are  to 
be  made,  the  sales  manager  can  readily  estimate  the 
number  of  traveling  salesmen  required.  At  the  same 
time,  an  estimate  can  be  made  of  the  total  amount  of 
business  which  the  territorj^  should  yield  under  the 
proposed  campaign.  Then  it  may  be  necessary  to 
add  specialty  salesmen  to  do  pioneer  work  on  private 
brands  but,  as  previously  stated,  such  men  are  under 
the  direction  of  the  merchandise  manager.  The  sales 
manager  may  also  add  general-line  and  house  sales- 
men. 

The  advertising  is  a  part  of  the  general  sales  plan. 
Advertising  and  selling  are  inseparable,  and  it  is  al- 
most impossible  to  tell  where  one  leaves  off  and  the 
other  begins.  The  advertising  function  of  a  sales  de- 
partment is  just  as  important  as  hiring  men  to  travel 
on  the  road.  In  order  to  cover  the  subject  satis- 
factorily it  is  necessarv  to  give  two  chapters  to  the 
sales  division.  The  .present  chapter  is  given  largely 
to  personal  selling  and  the  next  succeeding  one  to 
advertising  and  mail-order  work. 


68  WHOLESALE  MERCHANDISING 

5.  Dividing  the  territory. — Jobbers  have  been  in 
the  habit  of  considering  a  territory  from  a  standpoint 
of  the  production  of  the  individual  salesman  rather 
than  from  the  natural  resources  or  the  reasonable  ex- 
pectancy of  the  territory.  A  territory  should  be 
looked  upon  as  a  certain  percentage  of  the  sales  ex- 
pectancy of  the  house  and  considered  from  this  stand- 
point. 

Territory  should  be  mapped  out  by  the  house  from 
a  standpoint  of  convenience  and  economy.  Each  ter- 
ritory should  be  studied  and  analyzed  as  a  separate 
problem  and  the  results  to  be  obtained  prearranged, 
then  men  found  to  produce  those  results  rather  than 
trying  to  arrange  a  territory  to  suit  the  peculiar  char- 
acteristics of  a  man.  The  house  should  look  upon  a 
territory  the  same  as  a  ten-acre  farm  that  must  be 
made  to  yield  a  maximum  crop  under  intensive  meth- 
ods, and  the  salesman  should  be  considered  in  the  light 
of  the  farmer  who  is  to  plow,  sow  and  reap  the  crop. 

The  task  of  dividing  the  territory  among  the  road 
salesmen  is  always  a  difficult  one.  It  is  proverbial 
that  the  other  fellow's  field  always  looks  better;  and 
there  will,  of  course,  be  some  inherent  differences. 
However,  these  differences  can  be  reduced  to  a  mini- 
mum by  careful  adjustment,  and  unfairness  can  be 
avoided  entirely  by  further  adjustment  according  to 
the  ability  of  the  men  as  proved  by  their  records.  One 
jobber  divides  his  territory  into  three  classes  consist- 
ing of  large,  medium  and  small  accounts  and  classifies 


SELLING  SUPERVISION  69 

them  as  A,  B  and  C  territories.  The  new  man  as  a 
junior  salesman  starts  on  C  grade  territory.  If  he 
works  hard  and  succeeds,  he  is  advanced  to  B  grade 
territory  in  a  year  or  two  and  finally  to  A  grade  ter- 
ritory. Sometimes,  as  a  special  reward,  he  is  given  a 
few  B  grade  accounts  while  still  a  C  grade  salesman. 
There  is  in  fact  nothing  to  hinder  a  division  of  the  ter- 
ritory along  practical  rather  than  geographical  lines 
if  this  makes  for  the  best  interests  of  the  business. 

The  more  customary  classification  is  between  gen- 
eral house  salesmen,  road,  and  specialty  salesmen  as 
given  in  the  organization  chart,  and  this  allows  for  a 
line  of  development  for  each  man.  It  is  customary  to 
])egin  as  a  house  salesman  and  in  this  way  get  the  first 
outside  experience  either  as  a  road  salesman  covering 
a  section  for  several  lines,  or  a  specialty  salesman 
covering  a  still  larger  territory  for  a  single  line.  In 
time  the  salesman  may  earn  a  position  as  general 
salesman  with  almost  the  authority  of  a  district  sales- 
manager,  so  far  as  his  accounts  are  concerned. 

It  may  be  necessary  to  handle  some  business  other- 
M-ise  than  thru  salesmen.  When  a  grocery  jobber 
sells  to  chain  stores,  the  business  is  generally  consid- 
ered a  "house  account."  When  the  buyer  for  the 
chain  wishes  to  purcliase  a  quantity  of  coffee,  he 
makes  the  rounds  of  the  jobbers  until  he  can  close  a 
satisfactory  deal  for  the  goods  desired.  It  is  evident 
that  only  the  head  of  the  coffee  department  can  han- 
dle such  a  large  sale.     There  must  be  a  clear  under- 


70  WHOLESALE  MERCHANDISING 

standing  with  salesmen  as  to  what  business  shall  be 
considered  "house  accounts."  All  this  business  is  dis- 
regarded when  dividing  up  the  territory. 

6.  Sort  of  salesmen  to  employ. — The  type  of 
salesmen  required  will  var}^  with  the  line  of  goods 
which  the  jobber  is  handling,  as  well  as  with  the  kinds 
of  dealer  to  whom  he  is  appealing,  and  the  location 
of  these  dealers.  The  jobber's  salesmen  must  know 
the  working  methods  of  their  house  in  greater  detail 
than  is  necessary  for  salesmen  in  lines  where  service 
is  not  so  dominant  a  factor.  Most  jobber's  salesmen 
have  come  up  thru  the  ranks  of  their  respective  or- 
ganizations. They  may  have  w^orked  first  in  the 
stock  room,  or  the  accounting  department,  and  have 
proved  themselves  successful  in  the  inside  organiza- 
tion. In  this  way  they  are  graduated  from  one  de- 
partment to  another  until  they  earn  places  as  sales- 
men. Frequently  it  is  possible  to  engage  young  men 
for  clerical  work  in  the  house  with  the  avowed  pur- 
pose of  eventually  making  them  salesmen.  This 
method  distributes  the  expense  of  training  over  a 
period  of  years.  It  may  be  desirable  to  employ  sales- 
men who  have  had  selling  experience  with  other  first- 
class  houses  in  the  same  line.  These  are  usually  ex- 
cellent men  for  newly  organized  houses.  The  road 
experience  and  acquaintance  with  the  trade  are  valu- 
able assets  and  in  many  cases  a  salesman  will  bring  a 
majority,  or  even  all,  of  his  customers  to  the  new 
house.  But  the  salesman  who  is  anxious  to  leave 
an  established  house  and  make  a  new  connection  is 


SELLING  SUPERVISION  71 

always  open  to  suspicion  as  to  why  he  wishes  to  leave, 
or  even  why  he  is  willing  to  make  the  change  to  a  new 
and  strange  organization.  Occasionally  jobbers  feel 
it  is  unethical  to  employ  such  men  and  so  insist  on 
having  men  who  have  never  sold  for  a  competing 
house. 

Again,  there  are  excellent  salesmen  to  be  had  from 
the  retail  field.  There  are  men  in  country  stores  who 
may  not  have  the  means  to  run  a  store  of  their  own, 
or  who  have  been  only  moderately  successful  as  re- 
tailers, who  will  make  excellent  traveling  salesmen 
because  they  know  so  thoroly  the  retailer's  problems 
and  point  of  view.  One  distinctlj?-  successful  grocery 
jobber  recruits  his  force  almost  entirely  from  this 
source,  selecting  men  of  about  forty  years  of  age. 
Of  course,  it  is  necessary  to  train  these  men  thoroly,  in 
order  that  they  may  get  the  jobber's  point  of  view  as 
well  as  the  retailer's. 

There  is  a  fourth  group  of  men  who  can  be  de- 
veloped into  successful  jobber  salesmen.  This  group 
includes  the  "personality"  salesmen.  The  individual 
may  be  a  man  who  has  not  met  with  success  in  his 
chosen  field  because  he  is  not  altogether  adapted  to  it. 
Perhaps  he  has  been  trained  for  some  profession  thru 
family  influences,  and  really  does  not  like  his  work. 
Some  of  these  men  may  possess  pleasing  personali- 
ties and  the  knack  of  meeting  people  and  impressing 
them  with  their  views.  Such  men  have  many  of 
the  essential  qualities  of  salesmen,  tho  training  is 
necessary  to  supply  any  lack  of  business  experience. 


72  WHOLESALE  MERCHANDISING 

These  men  must  be  taught  the  inside  working  of  a  job- 
ber's business,  and  something  regarding  retail  store 
methods.  Men  of  this  sort  are  ahnost  invariably  an 
excellent  addition  to  the  sales  force. 

7.  Expense  of  employment  and  training. — In  man- 
ufacturing industries,  it  is  estimated  that  from 
twenty-five  to  one  hundred  dollars  must  be  spent  to 
train  a  new  mechanic  to  work  efficiently.  In  the  sales 
force  the  average  expense  is  still  higher.  One  large 
manufacturer  figures  that  each  new  salesman  repre- 
sents an  investment  of  at  least  $500.  This  varies, 
however,  with  each  concern  according  to  the  amount 
of  care  used  in  selecting  men  and  in  training  them. 
Some  houses  are  continually  changing  their  repre- 
sentatives, while  others  invest  more  in  the  beginning, 
but  get  better  men  and  keep  them  longer. 

8.  Organizing  the  sales  force. — In  the  most  pro- 
gressive houses  it  is  fully  realized  that  it  is  very  poor 
business  policy  to  send  salesmen  off  into  the  field  and 
let  them  "try  their  luck."  Such  a  course  often 
brings  failure  to  men  and  not  infrequently  disaster 
to  the  house. 

The  modern  system  provides  in  many  cases  a  class 
for  the  training  of  new  salesmen  before  they  start  out 
in  the  field,  followed  by  coaching  under  the  guidance 
of  a  seasoned  salesman.  It  often  includes  the  learn- 
ing of  a  carefully  prepared  standard  selling  talk,  and 
presents  in  a  sales  manual  for  the  salesmen  the  valu- 
able information  and  counsel  which  has  been  gained 


SELLING  SUPERVISION  73 

from  the  experience  of  others.  In  such  systems  the 
equipment  for  the  salesman  receives  special  attention, 
with  the  purpose  in  mind  that  each  part  shall  be  as 
effective  as  possible,  and  no  part  superfluous. 

These  are  all  fundamental  concerns  of  sales  man- 
agement and  are  fully  discussed  in  the  INIodern  Busi- 
ness Text  on  "Salesmanship  and  Sales  JNIanagement." 
There  are  a  few  matters,  however,  which  should  re- 
ceive attention  here  with  especial  reference  to  tlie  job- 
bing trades. 

9.  Price  hooh. — A  great  deal  of  care  is  exercised 
in  the  compilation  of  the  price  book  to  insure  ac- 
curacy and  ease  of  interpretation.  Most  jobbers 
agree  that  prices  should  be  given  in  plain  figures  and 
that  discounts  should  be  figured  in  each  case  so  that 
the  salesmen  may  find  them  easily.  In  lines  such  as 
wholesale  groceries,  where  the  salesmen  are  given  some 
latitude  in  adjusting  prices  to  market  conditions,  it  is, 
of  course,  unnecessary  to  figure  discounts  in  advance. 
Each  salesman  should  be  made  to  understand  thoroly 
the  terms  and  discounts.  It  is  surprising  how  few 
salesmen  know  the  purpose  of  terms  and  discounts 
and  their  method  of  operation.  Changes  in  prices  are 
forwarded  to  the  salesmen  immediately,  either  by  wire 
or  mail,  so  that  they  may  make  the  necessary  notations 
as  soon  as  possible.  A  great  deal  of  unnecessary  fric- 
tion sometimes  arises  when  prices  have  been  changed 
on  a  certain  commodity  and  the  salesman,  not  having 
recorded  it  in  his  price  book,  quotes  the  customer  a 

XIX— 7 


74  WHOLESALE  MERCHANDISING 

price  lower  than  he  is  entitled  to  receive.  Most 
houses  require  salesmen  to  acknowledge  the  receipt 
of  new  pages  for  their  price  books. 

10.  Determining  coinpensation. — The  question  of 
how  much  the  jobber  should  pay  his  salesmen  is  a 
vital  one.  He  must  know  his  cost  of  doing  busi- 
ness and  determine  from  this  how  much  he  can 
allow  for  his  selling  expense.  The  most  important 
factor  to  bear  in  mind  here  is  that  a  successful  sales 
department  is  essential  to  the  success  of  the  business. 
If  the  salaries  are  small,  only  a  poor  class  of  salesmen 
will  be  attracted  and  results  will  be  correspondingly 
poor.  Good  salesmen  must  be  secured  and  they  must 
be  paid  in  accordance  with  their  ability.  The  increas- 
ing demands  which  are  being  placed  upon  a  jobber's 
services  require  that  he  employ  higher  grade  men  than 
in  the  past,  and  he  must  find  a  way  to  pay  good  men 
on  the  basis  of  their  ability. 

Originally  jobbers'  salesmen  received  salary  and 
expenses,  but  more  recently  a  commission  plan  or  a 
combination  of  salary  and  commission  has  been  much 
used.  However,  competition  is  so  keen  in  the  job- 
bing trade  that  it  has  been  necessary  to  find  a  way  to 
enable  the  salesmen  to  compete  in  price  when  neces- 
sary. This  has  resulted  in  giving  the  salesmen  cost 
figures  with  suggested  prices  and  then  dividing  with 
them  the  net  profits  resulting  from  each  sale.  As 
stated  under  the  discussion  of  marketing  policies,  this 
is  becoming  customary  in  groceries  and  other  heavy 
lines. 


SELLING  SUPERVISION  75 

One  plan  used  in  the  grocery  trade  is  called  the 
"base  price  and  overage  system."  The  price  book  is 
in  code  and  two  figures  are  given  on  each  article. 
One  figure  may  be  the  base  price  of  say,  12  cents. 
Xo  salesman  is  allowed  to  sell  below  this  price  with- 
out permission  from  the  house.  The  other  price  is 
the  suggested  or  list  price  of,  say,  13  cents.  The  base 
price  covers  the  cost  of  merchandise  and  the  general 
overhead,  but  no  selling  expense  or  profit.  The  list 
price  will  bring  a  fair  profit.  If  the  salesman  sells  at 
13  cents  without  expense  for  delivery,  the  one  cent 
profit  on  each  article  is  divided  so  that  the  salesman 
gets  60  per  cent  and  the  house  40  per  cent.  If  there 
is  a  delivery  expense,  this  must  be  deducted  before 
the  profit  is  figured  and  divided.  Under  this  plan,  it 
is,  of  course,  advisable  for  the  salesman  to  sell  as  far 
above  the  base  price  as  he  can.  In  no  case  can  he 
secure  an  abnormal  figure  because  competition  is  so 
keen  in  gi'oceries  that  no  salesman  could  sell  any  ap- 
preciable amount  at  a  price  far  above  the  current 
market. 

In  another  similar  sj^stem  the  cost  of  each  article 
is  listed  in  the  price  book,  together  with  suggested  or 
list  prices.  For  instance,  a  certain  house  figures  that 
it  costs  six  per  cent  of  the  selling  price  to  do  business, 
exclusive  of  selling  and  deliveiy  expenses.  They  ex- 
pect every  salesman  to  get  at  least  nine  per  cent  above 
cost  and  delivery  expense.  From  the  total  of  each 
sale,  all  expenses  for  cartage  and  delivery  are  de- 
ducted and  then  the  percentage  of  profit  is  figured. 


76  WHOLESALE  MERCHANDISING 

If  the  salesman  has  secured  just  nine  per  cent,  there  is 
tln-ee  per  cent  to  divide.  Of  this,  the  salesman  gets 
two  per  cent  and  the  house  one  per  cent.  If  he  gets 
only  eight  per  cent  above  the  cost  price,  the  house  gets 
tvi^o-thirds  of  one  per  cent  and  the  salesman  gets  one 
and  one-third  per  cent.  Various  other  proportions 
are  arranged,  so  that  the  division  of  profits  may  be  fair 
to  both  parties  and  the  salesman  is  still  left  with  a 
stimulus  to  get  the  business  at  as  good  a  price  as  is 
consistent  with  trade  conditions. 

Of  course  the  house  must  cut  the  listed  cost  prices 
below  actual  cost  if  the  market  is  declining;  other- 
wise, the  salesman  will  not  sell  the  merchandise,  as  he 
is  not  anxious  to  do  so  without  profit  to  himself. 
Then,  too,  the  sooner  goods  are  sold  when  the  market 
is  dechning,  the  better,  for  the  quicker  the  loss  is 
taken,  the  less  it  will  be.  On  the  other  hand,  if  a 
liouse  has  bought  advantageously  on  a  rising  market, 
it  must  mark  up  the  listed  cost  price  above  whatever 
the  goods  actually  cost  to  protect  itself  against 
possible  loss  on  a  declining  market.  Consequently, 
the  cost  figures  in  the  price  book  under  this  system  are 
the  currently  quoted  prices  rather  than  the  prices  ac- 
tually paid  for  each  quantity  of  merchandise. 

In  drygoods,  a  one-price  system  prevails.  Sales- 
men are  paid  either  on  a  salary  or  a  commission  basis, 
or  a  combination  of  the  two.  One  such  plan  is  in  the 
form  of  a  profit-sharing  system,  based  on  either  gross 
or  net  profits,  while  another  is  a  bonus  system  based 
on  a  pre-arranged  merchandise  plan.     The  third  i^ 


SELLING  SUPERVISION  77 

called  the  gi-aded  merchandise  system  and  is  based  on 
a  classification  according  to  profit  possibilities  in  each 
oroup  of  merchandise.  This  encourages  the  sales- 
men to  sell  the  grades  which  bring  the  most  profit, 
and  to  create  more  good-will  for  the  house. 

11.  Organization  of  recording  and  statistical  de- 
partments.— The  foundation  upon  which  the  success 
of  any  sales  campaign  rests  is  the  efficiency  of  the  re- 
cording and  statistical  division.  Unless  records  of 
the  activities  of  the  salesmen  and  the  results  of  their 
efforts  are  kept,  and  these  data  formulated  into  sta- 
tistics, no  sales  campaign  can  reach  a  high  degree  of 
success.  Xothing  presents  so  clearly  the  results  of 
sales  efforts  as  a  tabulation  of  facts  and  their  compila- 
tion into  a  chart  or  graph.  Successful  sales  depart- 
ments all  over  the  country  have,  as  part  of  their  equip- 
ment, departments  for  recording  and  compiling  sta- 
tistics. Such  records  are  not  always  actually  tabu- 
lated in  the  sales  department.  In  fact  they  are  more 
frequently  gotten  up  by  the  various  departments  from 
their  operating  records. 

The  records  kept  by  jobbers  vary  according  to  par- 
ticular circumstances.  In  any  case  statistics  should 
satisfy  each  jobber's  needs  and  should  be  as  complete 
as  those  needs  dictate.  The  overdoing  of  anything 
works  for  its  inefficiency  and  only  data  which  are  vital 
to  the  successful  conduct  of  a  sales  department  should 
be  recorded. 

It  is  important  to  keep  in  mind  in  this  connection 
that  the  labor  and  time  required  of  the  salesmen  for 


78  WHOLESALE  MERCHANDISING 

making  out  reports  for  the  sales  department  should  be 
reduced  to  a  minimum.  The  salesman  is  out  to  get 
business  and  should  not  be  burdened  with  making 
out  unnecessary  reports.  Standardized  forms  permit 
information  to  be  recorded  easily  and  rapidly. 

Records  which  are  not  put  in  form  to  use  easily  are 
often  not  used  at  all.  Neglect  of  the  records  can 
most  readily  be  avoided  by  putting  them  in  graphic 
form.  Daily  summaries  of  business  secured  are  re- 
corded on  a  chart  thruout  the  year.  INIonthly  sum- 
maries and  yearly  summaries  can  then  be  made  from 
tliis  chart  and  the  results  shown  up  clearly.  Many 
use  charts  to  show  the  service  which  they  are  giving 
the  retailer  and  emphasize  that  which  appeals  most 
to  the  retailer.  The  salesman's  record  can  also  be 
pictured  graphically,  as  well  as  the  general  condition 
of  the  territory  in  which  he  is  operating.  Such  rec- 
ords and  statistics  form  the  basis  of  the  next  year's 
campaign  and  show  clearly  the  present  campaign's 
strong  and  weak  points. 

12.  Keeping  in  touch  with  the  men. — In  order  to 
foster  a  spirit  of  loyalty  and  enthusiasm  for  hard  work 
among  the  men,  as  well  as  to  direct  their  activities, 
the  sales  manager  must  keep  in  constant  touch  with 
them.  Unless  he  does  this,  the  entire  work  of  the 
sales  campaign  will  fall  down  and  the  investment 
which  the  house  has  made  in  training  its  new  men  will 
be  lost. 

There  are  a  number  of  ways  in  which  the  sales 
manager  can  cooperate   with  the   salesmen.     Many 


SELLING  SUPERVISION  79 

sales  managers  make  it  a  regular  practice  to  spend  a 
good  part  of  their  time  in  the  field  with  the  men. 
This  is  especially  true  with  new  men  or  with  any  who 
are  not  producing  their  full  quotas  of  business. 
Other  sales  managers  depend  on  calling  such  men  in 
frequently  for  conferences.  Semi-annual  or  annual 
sales  conventions  accomplish  good  far  in  excess  of  the 
expense  incurred.  ]\Iany  jobbing  houses  work  in 
such  small  territories  that  all  their  men  can  come  in 
for  a  weekly  conference,  which  is  generally  held  on 
Saturday  morning. 

REVIEW 

What  is  the  function  of  the  selling  division  and  how  does  it 
accomplish  its  purpose? 

Upon  what  do  selling  methods  depend  ? 

What  is  the  purpose  of  the  sales  department  office? 

If  you  were  a  sales  manager  how  would  you  divide  territory 
among  your  road  salesmen? 

What  four  types  of  men  may  be  developed  into  good  jobber 
salesmen? 

Describe  some  of  the  various  plans  in  use  in  determining  com- 
pensation for  salesmen. 


CHAPTER  VI 

ADVERTISING 

1.  Necessity  for  jobber  advertising. — The  record 
of  successful  jobbing  houses  shows  that  nearly  all  of 
them  have  been  built  up  thru  the  force  of  personal 
salesmanship.  The  road  men  exploited  their  houses 
and  their  wares  in  the  most  forceful  way  possible — 
face  to  face  with  prospective  customers.  Consistent 
and  faithful  service  at  headquarters  backed  up  the 
claims  made  in  appealing  for  business,  and  the  result 
has  been  the  development  of  hundreds  of  big  whole- 
sale houses  which  have  had  no  material  expense  for 
advertising. 

But  in  keeping  with  the  changes  in  merchandising 
generally,  and  particularly  in  the  jobbing  field,  the 
need  has  arisen  for  the  general  salesmanship  which 
we  call  advertising,  to  aid  the  personal  selling  effort 
of  the  traveling  force.  This  is  due  in  part  to  in- 
creased competition;  in  part  to  the  activity  of  spe- 
cialty manufacturers  who  sell  direct  to  the  trade; 
in  part  to  the  necessity  for  paving  the  way  of 
the  salesmen  thru  advertising  of  the  "pioneer" 
sort;  and  in  part  to  the  changing  conditions  in 
retailing,  particularly  in  the  way  of  frequent  changes 
in  style  and  the  keeping  of  smaller  stocks.  This 
last  necessitates  more  frequent  purchases  than  can 

80 


ADVERTISING  81 

be  made  directly  from  salesmen,  and  consequently 
necessitates  mail-order  departments. 

2.  Present  status  of  jobber  advertising. — A  few 
years  ago  trade  papers  with  both  national  and  local 
circulation  contained  only  a  few  cards  of  jobbers,  in- 
serted possibly  more  as  a  matter  of  trade  policy  rather 
than  in  the  hope  of  getting  business.  In  a  recent 
number  of  the  Bulletin  of  the  Betail  Merchants'  As- 
sociation of  Utah,  there  appeared  fifteen  full  page 
advertisements  placed  by  jobbers  in  that  territory. 
This  increase  is  typical  of  the  growth  in  jobber  adver- 
tising of  other  sectional  trade  papers. 

The  type  of  advertising  has  undergone  a  change. 
From  the  simple  card  giving  the  name  of  the  firm,  its 
hne  and  perhaps  a  picture  of  the  office  and  warehouse, 
the  advertisement  developed  to  the  exploiting  of  pri- 
vate brands.  There  is,  of  course,  a  place  for  this  type 
of  advertising  at  the  present  time.  But  the  jobber 
of  today  realizes  that  his  function  is  one  of  service  and 
that  therefore  his  advertising  appeal  may  well  be 
based  on  the  service  he  is  prepared  to  render. 

3.  Function  of  jobber  advertising. — Under  pres- 
ent conditions,  therefore,  the  first  purpose  of  the  ad- 
^ertising  is  to  impress  the  retailer  with  the  jobber's 
ability  to  serve  as  a  wholesale  distributer.  Here,  as 
elsewhere,  words  without  deeds  are  a  liability  rather 
than  an  asset.  The  jobber  must  tell  plainly  how  he 
can  be  of  economic  service  to  the  retailer.  This  serv- 
ice will  be  based  upon  the  general  efficiency  of  the 
house  in  taking  care  of  the  retailer's  merchandise 


82  WHOLESALE  MERCHANDISING 

needs  but  it  must  not  stop  there.  The  jobber  must  do 
more  than  supply  the  most  suitable  wares  at  a  fair 
price.  He  must  cooperate  with  the  retailer  in  selling 
these  wares.  The  definite  methods  employed  in 
dealer  cooperation  will  be  discussed  in  the  next  chap- 
ter. It  is  the  first  function  of  advertising  to  bring 
both  these  types  of  service  to  the  retailer's  attention, 
for  they  are  the  basis  of  good-will.  The  advertise- 
ment of  M.  E.  Smith  &  Company  printed  on  page  83 
illustrates  how  one  jobber  is  advertising  a  single  phase 
of  his  service. 

The  second  function  of  jobber  advertising  is  to 
assist  in  reducing  the  selling  expenses  by  blazing  the 
way  for  the  sales  force.  The  jobber's  salesmen  sel- 
dom have  time  for  much  constructive  salesmanship 
because  of  the  long  list  of  items  they  sell  and  the  short 
time  that  can  be  given  to  each  customer.  This  is  par- 
ticularly true  in  connection  with  the  introduction  of 
new  lines  or  new  styles.  The  advertisement  of  tlie 
H.  B.  Claflin  Corporation  is  of  this  class. 

As  its  third  function,  jobber  advertising  has  a  very 
definite  task  in  linking  the  manufacturer,  jobber,  re- 
tailer and  consumer  together.  The  manufacturer's 
products  are  advertised  to  the  retailer,  and  hkewise 
the  jobber  assists  the  retailer  in  the  retailer's  own  ad- 
vertising of  the  same  wares.  Some  jobbers  arrange 
to  cooperate  with  both  manufacturers  and  retailers 
in  a  complete  system  of  advertising.  The  advertising 
of  The  Symns  Utah  Grocer  Company,  given  on 
page  85  is  of  this  type: 


ADVERTISING  83 


Another  Record  Smashed 


During  the  month  of  September  we  received  10232  orders,  and  of  this 
large  number  only  140  were  not  filled 

By  Four   O' Clock  of  the  Same  Day  They 
Arrived  at  Our  Offices 

That's  99.98  Per  Cent  PROFICIENT  SERVICE 

An  increase  in  service  efficiency  of  .28  over  our  best  record. 

It  seems  almost  incredible — imbelievable,  especially  at  this  time  when 
markets  are  so  xmcertain.  It's  a  fact,  however,  and  our  records  are  opefl 
to  verify  this  statement. 


^3333^"  _j^-iMk^JiAiW. 


provides  you  with  one  of  the  largest  and  best  open  stocks  of  Dry  Goods 
in  the  West,  backed  by  an  organization  of  buyers  who  keep  our  stocks 
as  complete  as  human  foresight  will  permit. 

Mesco  Service  is  of  vital  importance  to  every  merchant  at  the  present 
time— it  is  service  that  will  be  appreciated  when  once  tried,  and  service 
that  becomes  more  valued,  the  more  it  is  used — it  means  the  maximum 
delivery  of  goods  to  you — it  means  speed— and  it  means  PROFITS, 
This  service  is  yours  for  the  asking.  We  have  worked  hard  to  develop 
it  to  its  present  efficiency,  and  we  are  glad  that  we  can  ofifer  it  to  you. 
Write  us — we  want  your  business  and  we  are  in  a  position  to  take  care 
of  it  to  your  greatest  satisfaction. 
Start  today! 


M.  E.  SMITH  &  CO. 

Wholesale  Dry  Goods 

OMAHA 


4.  Advertising  for  manufacturing  and  semi-job' 
hers. — The  advertising  methods  of  the  manufacturing 
jobber  are  the  same  as  those  of  the  manufacturer  who 


84  WHOLESALE  MERCHANDISING 

sells  direct  to  the  retailer.  Advertising  on  specific 
lines  direct  to  the  consumer  thru  farm  papers  and  city 
dailies  in  the  jobber's  territory  is  the  most  effective 
means  of  promoting  the  general  interests  of  the  manu- 
facturing and  private-brand  jobbers.  A  definite 
demand  is  created  as  in  the  case  of  the  consumer  ad- 
vertising of  the  manufacturer.  This  brings  about  a 
complete  reaction  on  the  part  of  the  retailer  toward 
the  jobber  in  the  form  of  an  order  to  take  care  of  the 
specific  demand  created  by  the  jobber's  advertising. 

Likewise  the  retail  advertising  of  the  semi- job- 
ber is  identical  with  that  of  any  retailer,  except  as  the 
manufacturer's  jobber  may  have  extra  selling  argu- 
ments due  to  the  double  organization. 

5.  Organization  of  advertising  department. — Ap- 
proximately fifty  per  cent  of  the  jobbing  houses  have 
an  advertising  department  with  someone  giving  his 
personal  attention  to  the  work.  This  percentage  is 
increasing  rapidly.  When  there  is  no  separate  de- 
partment the  advertising  is  handled  by  a  committee. 

In  addition  to  the  advertising  copy,  the  department 
prepares  the  price  book  or  catalog  and  keeps  it  re- 
vised. Frequently  the  dealer  cooperation  work  is 
carried  on  by  the  advertising  department,  as  in  the 
past  this  work  consisted  largely  of  the  distribution  of 
advertising  and  selling  material,  such  as  show  cards, 
signs  and  window  displays.  With  the  coming  of  real 
cooperation  on  the  part  of  the  jobber,  such  as  help  in 
store  systems  and  accounting  methods,  it  is  frequently 
necessary  to  have  a  more  thoro  training  and  experi- 


ADVERTISING  85 

ence  than  is  likely  to  be  found  in  the  case  of  the  aver- 
age advertising  manager,  and  for  that  reason  separate 
dealer  service  departments  are  organized. 

G.  The  appeal. — The  purpose  of  the  advertising 
naturally  determines  the  nature  of  the  appeal.  If  the 
j)urpose  is  to  exploit  the  house  generally,  as  in  the 
case  with  the  advertisement  of  ]M.  E.  Smith  &  Com- 
pany on  page  83,  the  appeal  of  prompt  delivery  from 
well  maintained  stocks  is  excellent.  If  the  advertise- 
ment is  to  do  "missionary"  work  for  a  single  depart- 


Symns  Utah  Grocer  Co. 

Exclusive  Jobbers  of  Staple  and  Fancy  Groceries 

DISTRIBUTORS  FOR 

LIpton's  Teas 

LIpton's  CofTees 

Lipton's  Jelly  Tablets 

Sight  Draft  Cigars 

Thompson  &  Taylor's  Coffees 

Fort  Stan wlx  Fancy  Vegetables  (Flag  Brand) 

We  travel  regularly,  the  four  states,  viz: 
UTAH,      IDAHO,       NEVADA,      WYOMING 

Any  business  entrusted  to   us  Is  appreciated 
and  will  have  our  prompt  and  best  attention 

Remember  we  sell  DEALERS  ONLY 

Mall  Orders  A  Specialty 

TELEPHONE:  MAIN  48.  P.  O.  BOX  866 

SALT  LAKE  CITY,  UTAH 


86 


WHOLESALE  MERCHANDISING 


ment,  the  appeal  must  be  similar  to  that  of  the  H.  B. 
Claflin   Corporation,  illustrated  below.     The  direct 


White  Goods  for  1917 


The  strongest  and  wisest  statement  we  can  make  in  this  Bonte» 
White  Goods  Announcement  is  simply  to  reflect  what  market  editor- 
ials say — that  this  will  be  an  espeaaliy  active  year  (or  all  weights 
and  styles  o(  white  goods — that  because  ol  shortage  in  many  quali- 
ties, alert  retailers  should  cover  their  needs  now.  both  for  their  own 
profit  and  to  satisfy  all  their  customers- 

BONTEX  Line  o!  White  Goods  is  ready  in  gr"' 
completeness  And  we  can  add  in  splendid  distinction. 

Sheer  White  Goods — in  plain  and  fancy  effects — a  particu- 
lar feature  ol  the  BONTEIX  line — the  showing  includes  voiles, 
balisla,  organdies  and  marquisettes. 

Fashionable  Embroidered  Novelties— are  incomplete 

range  in  this  showing,  including  original  effects  ol  unusual  style  ment 
and  great  selling  possibilities. 

White  Skirtings — Heavy  Weaves  which  are  especially  popular 
because  of  their  adaptabdity  for  sport  fashions  are — poplins,  piques. 
Basket  Weaves,  corded  effects,  tennis  cloths,  gabardines  and  beach 
cloths. 

White  and  Colored  Irish  Dress  Linens— continue 

their  popularity  and  are  ui  complete  range  in  BONTEX  oflenngs. 
because  we  anticipated  conditions  we  are  maintaining  the  usual 
BONTEX  Service-  All  popular  shades,  weaves  and  finishes  in  36 
and  45  inch  widths. 


The  H.  B.  Claflin  Corporation,  New  York 

R  P.  BONTIES.  Piesidtnt 

OiUt  ani/  Retail  Entcrpitie  Artt/wheie. 


The  House  oF 
Bon I  EV 


ADVERTISING  87 

selling  appeal  for  special  lines  is  illustrated  by  the  ad- 
vertisement of  the  Symns  Utah  Grocery  Company  on 
page  85. 

7.  Advertising  appropriation. — The  neophyte  in 
advertising  decides  how  much  he  can  lose  in  advertis- 
ing without  becoming  bankrupt,  and  plunges  accord- 
ingh\  The  man  who  conducts  his  merchandising  by 
plan,  figures  out  how  much  advertising  he  needs  just 
as  carefully  as  he  figures  the  amount  of  personal 
salesmanship  he  needs  to  cover  his  territory.  Once 
the  house  is  well  established  it  is  possible  to  deter- 
mine from  the  experience  of  other  jobbers  in  the  same 
line  whether  the  advertising  is  costing  more  than  it 
should.  For  instance,  the  analysis  of  the  expense  of 
doing  business  in  wholesale  dry-goods,  given  on  the  in- 
sert opposite  page  38,  indicates  that  the  cost  should  be 
about  one-tenth  of  the  per  cent  on  gross  sales.  If  the 
cost  of  the  mail-order  catalog  and  other  printed  mat- 
ter is  to  be  included  in  the  advertising,  the  total  will  be 
from  .3  to  A  of  1  per  cent. 

8.  Selection  of  medium. — It  is  obvious  that  the  or- 
dinary jobber  must  select  the  medium  which  reaches 
the  largest  number  of  retailers  in  his  line,  and  a  me- 
dium whose  circulation  is  limited  as  far  as  possible  to 
the  territory  in  which  he  operates.  Naturally  it  is 
seldom  possible  to  find  a  medium  in  which  there  is 
not  considerable  waste  circulation  from  the  jobber's 
standpoint.  The  quality  of  circulation  should  be  in- 
vestigated thoroly,  and  papers  which  are  not  of  high 
fjuality  as  mediums  should  be  passed  by.     It  is  unfor- 


88  WHOLESALE  MERCHANDISING 

tunately  true  that  many  trade  papers  exist  mainly 
for  advertising  purposes.  No  jobber  should  feel  it 
necessary  to  advertise  in  all  the  trade  papers  in  his 
hne  and  territory,  for  unless  a  paper  is  a  good  medium 
it  is  a  parasite  and  should  not  be  encouraged. 

9.  Miscellaneous  types  of  advertising. — Advertis- 
ing novelties  have  been  used  by  jobbers  for  many 
years.  Of  course  a  present  of  a  memorandum  book 
or  a  desk  calendar  creates  some  good-will  for  the  job- 
ber, but  it  is  doubtful  whether  the  return  is  pro- 
portionate to  the  cost.  Of  greater  value  is  the  large 
piece  of  equipment,  such  as  a  store  sign  or  a  thermom- 
eter, for  which  the  retailer  pays  a  part  of  the  cost,  or 
which  is  given  him  as  a  reward  for  increasing  his  pur- 
chases in  certain  lines.  Retailers,  like  all  other  Im- 
man  beings,  appreciate  most  the  things  which  cost 
them  either  time  or  money. 

10.  Direct  advertising  for  the  jobber. — Advertising 
to  the  retailer  thru  letters,  catalogs  and  other  direct 
forms  has  always  been  successful.  During  recent 
years  many  jobbers  have  installed  mail-order  promo- 
tion departments  for  the  purpose.  Such  work  is  par- 
ticularly effective  in  introducing  a  new  line. 

11.  Jobber's  catalog. — The  preparation  and  dis- 
tribution of  the  jobber's  catalog  is  a  tremendous 
task,  as  every  jobber  who  has  a  catalog  will  testify. 
In  some  lines  the  catalog  is  not  necessary,  but  with 
the  increasing  tendency  to  buy  often,  it  is  difficult  to 
dispense  with  it.  If  the  catalog  is  to  be  successful, 
it  must,  of  course,  be  well  done.     In  some  of  the  large 


ADVERTISING  89 

concerns  the  catalog  department  includes  a  complete 
advertising  department  in  itself,  with  a  staff  of  artists, 
copywriters,  layout  men,  and  occasionally  a  private 
printing  plant.  However,  such  a  condition  is  unusual 
and  the  smaller  jobber  frequently  turns  over  the  work 
of  preparing  the  catalog  to  a  specialist  who  assumes 
responsibility  for  the  complete  catalog. 

REVIEW 

What  is  the  importance  to  the  retailer  of  jobber  advertising? 

What  are  the  functions  of  the  advertising  department  of  a  job- 
bing house? 

From  what  mediums  will  the  jobber  get  the  most  satisfactory 
results? 

What  is  the  particular  strength  of  the  M.  E.  Smith  &  Company 
advertisement  ? 

If  you  were  a  retailer,  what  sort  of  jobber  advertising  would 
appeal  to  you  most  powerfully? 


XIX— 8 


CHAPTER  VII 

COOPERATING  WITH  THE  RETAILER 

1.  Jobber's  obligation  to  cooperate. — In  the  final 
analysis  the  jobber's  function  is  to  serve  the  producer 
'  or  manufacturer  in  distributing  his  goods  by  means 
of  the  retailer,  and  to  serve  the  retailer  by  providing 
him  promptly  and  in  proper  quantities  with  the  mer- 
chandise he  cannot  get  economically  direct  from  the 
manufacturer.  The  main  element  in  any  jobber's 
work  is  one  of  service.  In  the  present  chapter  we 
are  concerned  with  the  cooperation  which  the  jobber, 
together  with  the  producer  or  manufacturer,  renders 
to  the  retailer.  This  is  commonly  called  "dealer  co- 
operation" and  the  material  used  for  the  purpose, 
"dealer  aids.'* 

For  many  years  jobbers  have  been  cooperating 
with  retailers  in  various  effective  ways.  Jobbers' 
salesmen  have  made  it  a  point  to  pass  along  from  one 
retailer  to  another  good  ideas  on  merchandising. 
Credit  managers  in  wholesale  houses  have  always 
been  ready  to  confer  with  retailers  on  their  financial 
problems.  Many  jobbers  who  make  no  pretense  of 
having  a  special  man  or  department  for  dealer  co- 
operation work  have  been  acting  effectively  as  busi- 
ness advisers  to  their  retail  customers.  From  this 
they  have  built  up  a  great  deal  of  good-will. 

90 


COOPERATING  WITH  RETAILER  91 

2.  Two  kinds  of  dealer  cooperation. — The  jobber 
gives  the  most  valuable  cooperation  when  he  acts  as 
a  friendly  adviser  to  the  retailer  in  any  of  his  busi- 
ness problems.  It  is  common  for  a  young  man  about 
to  enter  the  retail  business  to  make  a  trip  to  the 
jobbing  house  with  which  he  proposes  to  deal.  He 
will  go  over  with  the  sales  manager,  or  even  the  presi- 
dent of  the  house,  the  jjroposed  plans  and  get 
assistance  in  planning  his  business  along  proper 
lines.  Such  jobbing  houses,  for  instance,  as  Butler 
Brothers  in  Chicago,  go  to  great  pains  to  be  of  every 
possible  help  in  such  cases  and  point  with  pride  to  the 
retail  concerns  which  they  have  helped  to  launch. 

3.  Helping  in  the  solution  of  individual  prob- 
lems.— Beyond  such  preliminary  assistance  the  jobber 
can  be  of  frequent  service.  Whenever  the  retailer 
strikes  a  problem  which  he  seems  unable  to  solve,  he 
Avill  find  the  jobber  with  whom  he  does  business  ready 
and  anxious  to  help. 

^Slany  jobbers  have  a  report  blank  which  the  sales- 
man is  required  to  fill  in  at  every  call  so  that  the  job- 
ber may  anticipate  needs,  and  whenever  he  feels  that 
liis  help  would  be  welcome,  to  take  the  initiative.  In 
many  cases  the  salesman  sees  the  retailer's  difficulties 
and  can  suggest  the  remedy  at  once.  This  would  be 
the  ideal  form  of  dealer  cooperation,  but  unfortu- 
nately few  jobbers'  salesmen  are  sufficiently  trained 
in  retail  merchandising  to  give  the  necessary  coopera- 
tion. One  of  the  biggest  opportunities  at  present  in 
jobbing  is  in  connection  with  the  possibility  of  train- 


92  WHOLESALE  MERCHANDISING 

ing  the  jobber's  salesmen  to  be  service  men  as  well  as 
salesmen. 

4.  Credit  man  as  service  man. — The  next  point  of 
contact  with  the  retailer  will  come  thru  the  credit 
department  of  the  jobbing  house.  In  trying  to  find 
out  why  the  merchant  is  slow  in  paying  his  bills,  the 
credit  man  frequently  puts  his  finger  on  the  retailer's 
weak  spot.  He  may  discover  that  the  retailer, 
thru  lack  of  knowledge  of  his  cost  of  doing  business 
in  each  line,  may  be  selling  certain  lines  below  cost. 
Again,  he  may  find  that  a  large  part  of  the  retailer's 
capital  is  tied  up  in  dead  stock.  In  such  a  case  he 
can  recommend  an  inventory  system  or  a  set  of 
checks  which  will  show  what  goods  are  selling  and 
at  the  same  time  protect  the  retailer  against  leaks. 
He  may  find  that  the  retailer  is  unable  to  get  the 
credit  he  deserves  at  his  bank  because  he  cannot  draw 
up  a  good  statement  showing  the  condition  of  his 
business,  with  its  comparative  yearly  growth.  When 
a  dealer's  business  shows  signs  of  impending  bank- 
ruptcy it  is  the  policy  of  many  credit  managers  to 
take  the  first  train  to  the  retailer's  town.  A  slight 
study  of  the  situation  will  enable  a  good  credit  man 
to  save  a  large  percentage  of  such  failures,  and  the 
time  and  expense  involved  is  a  good  investment. 

5.  Dealer  aids. — The  second  and  most  common 
form  of  dealer  cooperation  is  in  the  form  of  aids  for 
the  sale  of  individual  articles.  These  consist  of  win- 
dow displays,  signs,  booklets  descriptive  of  the  mer- 
chandise and  its  methods  of  manufacture,  and  the 


COOPERATING  WITH  RETAILER  93 

like.  In  the  case  of  such  articles,  the  material  itself 
must  be  prepared  by  the  manufacturer  of  the  mer- 
chandise. Therefore,  except  in  the  case  of  his  own 
private  brands,  the  jobber  must  look  to  the  manu- 
facturer for  these  dealer  aids.  The  man  who  creates 
a  special  brand  of  merchandise  is  really  the  logical 
one  to  create  the  aids  for  its  sale. 

It  is  not  our  purpose  here  to  discuss  whether  or  not 
the  jobber  should  handle  nationally  advertised  brands 
other  than  those  of  his  own  manufacture,  but  rather 
to  point  out  his  source  for  dealer  helps.  In  case  he 
does  handle  such  lines,  for  his  own  sake  he  must  co- 
operate with  the  manufacturer  in  the  distribution  of 
any  dealer  aids  provided  by  the  manufacturer. 

Of  the  two  types  of  cooperation,  the  former  is  the 
more  important.  The  average  retailer  needs  help  in 
devising  a  good  accounting  system  or  a  means  of 
training  his  clerks  in  salesmanship  far  more  than  he 
needs  additional  window  trimming  material  or  show 
cards.  Unless  he  has  the  means  to  increase  his  mer- 
chandising ability  generally,  it  is  of  little  use  to  add  to 
the  selling  devices.  The  jobbers  of  the  country  and 
everyone  else  dependent  upon  the  retailer  for  final  dis- 
tribution realize  this  also.  Jobbers'  associations  are 
working  hard  on  the  problem,  and  furthermore,  thru 
cooperation  with  their  members  and  with  retail  trade 
associations,  they  are  doing  much  to  help  the  re- 
tailer become  a  better  merchant.  Several  outside 
agencies,  such  as  the  Associated  Advertising  Clubs 
of  the  AVorld,  have  organized  departments  to  cooper- 


94  WHOLESALE  MERCHANDISING 

ate  in  devising  accounting  and  cost-keeping  systems, 
and  the  like.  It  behooves  the  jobber  to  cooperate 
with  every  reputable  organization  engaged  in  the 
work  and  to  collect  useful  material  from  ever}?"  avail- 
able source. 

6.  Accounting  and  store  systems. — An  investiga- 
tion made  by  Robert  H.  Ingersoll  and  Brother  proves 
that  in  the  majority  of  small  retail  stores  only  twenty 
per  cent  of  the  stock  is  active.  Mr.  George  W. 
Whelan,  President  of  the  United  Cigar  Stores  Com- 
pany, estimates  that  less  than  fifty  per  cent  of  the  re- 
tailers take  an  inventory  once  a  year.  Yet  the  means 
for  keeping  track  of  one's  stock  so  that  the  slow-mov- 
ing goods  may  be  weeded  out,  may  easily  be  obtained 
by  means  of  a  simple  accounting  and  stockkeeping 
system.  It  enables  the  retailers  to  find  out  in  a  mo- 
ment the  amount  of  stock  of  each  kind  on  hand,  the 
turnover  on  each  line,  and  consequently  the  lines  which 
are  profitable,  the  sales  of  each  clerk,  and  finally  the 
total  sales  by  lines.  The  expense  of  doing  business, 
together  with  the  percentage  of  net  profit  and  the 
total  profit  on  each  line  may  also  be  easity  determined. 

Many  retailers  are  afraid  to  adopt  complete  mod- 
ern retail  systems  because  they  believe  that  such  sys- 
tems are  too  complex  and  require  too  much  clerical 
labor.  Yet  the  average  country  storekeeper  wastes 
hours  every  day;  and  the  same  is  true  of  his  clerks. 
It  is  one  of  the  duties  of  the  more  progressive  retailers 
as  well  as  of  jobbers  and  manufacturers  to  educate 
the  country  retailer  to  appreciate  the  value  of  such 


COOPERATING  WITH  RETAILER  95 

systems.  A  duty  rests  likewise  upon  those  who  de- 
vise such  systems,  to  make  them  both  simple  and  ef- 
fective. Any  junior  accountant  can  devise  a  complex 
system;  but  it  takes  a  genius  to  balance  simplicity 
with  effectiveness.  The  jobber  is  wise  who  gives  pa- 
tient thought  to  the  study  of  the  needs  of  the  retailer 
before  recommending  the  remedy. 

7.  Advertising  helps. — ^Dealer  cooperation  began 
with  advertising  helps,  and  this  form  of  service  to  re- 
tailers is  still  the  most  common.  These  consist 
mainly  of  electros  of  advertisements,  booklets  and 
catalogs,  counter  and  store  cards,  window  displays 
and  store  signs.  It  was  so  easy  to  get  out  ma- 
terial of  this  sort  and  scatter  it  broadcast  that  it  was 
overdone.  Retailers  receive  so  much  more  material 
than  they  can  possibly  use  that  much  of  it  is  thrown 
away.  Manufacturers  and  jobbers  are  realizing  this 
situation  and  as  a  result  some  send  material  only  on 
special  request,  while  others  arrange  for  one  of  their 
salesmen  to  investigate  the  needs  of  each  retailer 
and  to  deliver  the  material  he  is  sure  will  be 
used.  In  the  case  of  window  displays  it  is  customary 
to  have  a  crew  of  men  who  deliver  and  set  up  the  dis- 
play. The  present  tendency  is  to  improve  the  qual- 
ity and  cut  down  the  quantity  of  display  material. 

The  manufacturers  and  jobbers  have  also  become 
convinced  that  advertising  service,  to  be  effective, 
must  be  individual  rather  than  general.  Retailers 
need  help  in  planning  their  advertising  campaigns  and 
in  the  preparation  of  copy.     Here  the  jobber  has  an 


96  WHOLESALE  MERCHANDISING 

advantage  over  the  manufacturer,  as  he  prefers  to 
give  individual  help  rather  than  to  supply  expensive 
printed  material.  Furthermore,  retailers  want  to 
feature  themselves  rather  than  the  manufacturer  or 
the  jobber.  The  jobber  has  no  desire  to  feature  him- 
self in  the  advertising;  he  agrees  with  the  retailer  in 
the  matter. 

In  cases  where  jobbers  do  little  advertising  them- 
selves and  have  no  organization  for  the  work,  they 
can  combine  to  form  a  joint  dealer-service  bureau. 
The  jobbers  of  St.  Joseph,  Missouri,  organized  such 
a  bureau  and  employ  an  expert  in  merchandising 
who  gives  his  entire  time  to  the  assistance  of  the  re- 
tailers in  the  jobbers'  territory.  The  work  has  been 
strikingly  successful. 

8.  Dealer  sei'vice  thru  the  house  organ. — Recently 
many  jobbers  have  come  to  realize  that  the  house  or- 
gan, if  it  is  to  succeed,  must  be  something  more  than 
disguised  advertising ;  in  fact,  that  it  must  be  first  of 
all  of  service  to  the  retailer.  The  house  organ  is  an 
excellent  medium  for  keeping  the  retail  trade  informed 
on  business  opportunities  and  trade  conditions.  The 
complaint  is  frequent  among  retailers  that  on  account 
of  the  large  variety  of  articles  which  they  handle,  they 
are  unable  to  study  the  selling  possibilities  of  many 
of  them,  and  that  manufacturers  and  jobbers  give 
them  little  real  help  in  this  way.  Descriptions  of 
methods  used  by  other  successful  merchants  are  par- 
ticularly acceptable. 

9.  Retail  salesmanshij). — There  is  a  great  oppor- 


COOPERATING  WITH  RETAILER  97 

tunit}'  for  the  jobber  to  assist  the  retailer.  The  job- 
ber's salesman  is  in  closer  touch  with  the  needs  of  the 
dealers  in  his  territory  than  perhaps  any  other  per- 
son interested  in  the  distribution  of  goods.  If  this 
salesman  is  a  man  of  keen  observation,  he  can  easily 
find  the  clerks  who  need  training  in  salesmansliip,  and 
persuade  the  dealer  to  allow  them  to  take  a  course 
of  instruction.  The  four  general  methods  of  helping 
the  retailer  to  improve  the  selling  ability  of  his  clerks 
are  these:  (1)  systematic  instruction  by  means  of 
correspondence  courses ;  ( 2 )  personal  demonstrations ; 
(3)  salesmen's  contests;  and  (4)  unsystematic  in- 
struction tlii'u  house  organs,  booklets  and  circulars. 

10.  Correspondence  courses  in  retail  selling. — The 
use  of  correspondence  courses,  which  is  the  first 
method  of  improving  retail  salesmanship,  is  the  only 
thoro  one.  Because  of  the  expense  involved,  few 
jobbers  are  able  to  work  up  such  courses  independ- 
ently. The  material,  however,  can  be  obtained  from 
manufacturers,  trade  associations  and  educational 
institutions,  or  direct  from  text-books  on  retail 
selling.  Generally  it  is  best  for  the  jobber  to  co- 
operate in  this  work  with  other  agencies.  One  manu- 
facturer has  recently  found  that  by  making  a  small 
charge  for  his  course  he  increases  the  appreciation  of 
its  value  and,  correspondingly,  the  proportion  of  those 
who  complete  it  satisfactorily. 

11 .  Demonstrations  of  salesmanship. — Some  manu- 
facturers have  traveling  salespeople  who  instruct 
clerks  in  the  dealer's  establishment,  while  others  main- 


98  WHOLESALE  :MERCHANDISING 

tain  a  training  school  at  the  factory.  Sometimes  state 
universities,  such  as  Wisconsin,  thru  their  extension 
department  supply  traveling  instructors.  In  certain 
cities  the  educational  authorities  are  in  a  position  to 
conduct  classes  in  retail  salesmanship  in  the  high 
schools  of  commerce.  In  fact,  the  sources  of  help  of 
this  sort  are  numerous. 

12.  Sales  contests. — The  third  means  of  improving 
retail  salesmanship  is  sales  contests.  Salespeoi^le  will 
work  harder  to  increase  their  efficiency  when  there  is  a 
reward  or  prize  in  sight  than  under  any  other  circum- 
stances. It  is  easier  to  see  a  direct  reward  in  the  shape 
of  a  prize  than  an  indirect  reward  in  an  increase  in 
salary  at  some  future  day.  Therefore,  weekly  sales 
contests,  quota  systems  and  the  like,  offer  an  excellent 
stimulus  to  the  study  of  how  one  may  increase  selling 
efficiency. 

13.  House  organs  and  miscellaneous  dealer  litera- 
ture.— Many  people  who  would  not  follow  a  sys- 
tematic course  are  reached  by  means  of  practical  ex- 
amples in  the  form  of  anecdotes  and  articles  in  house 
organs  and  dealer  literature.  This  influence  is  con- 
tinuous in  its  operation.  Such  instruction,  tho  not 
systematic,  can  be  very  effective.  In  order  to  hold 
the  interest  of  the  clerk  and  the  dealer,  the  house 
organ  should  constantly  emphasize  the  great  impor- 
tance of  the  work  done  by  the  clerks  of  the  retailer. 
The  biggest  problem  to  solve  in  this  form  of  in- 
struction is  getting  the  literature  to  the  clerk  at  a  time 
when  he  is  able  to  read  it.     Accordingly,  it  is  much 


COOPERATING  WITH  RETAILER  99 

better  to  send  the  literature  to  the  clerk's  home,  where 
he  has  time  in  the  evening  to  study  it. 

14.  Selling  points  of  merchandise. — Unless  a  sales- 
person understands  the  selling  points  of  the  merchan- 
dise, he  is  in  no  position  to  use  his  training  in  sales- 
manship. It  is  easy  to  obtain  this  information,  since 
manufacturers  are  taking  great  pains  today  to  pre- 
pare literature  describing  materials,  process  of  manu- 
facture and  points  of  merit,  all  of  which  can  be  used  in 
selling  their  products  to  the  consumer.  Here  again 
the  jobber  comes  in  as  a  distributor.  With  his  knowl- 
edge of  the  dealer's  needs,  he  is  in  a  better  position 
than  the  manufacturer  to  place  this  material  in  the 
hands  of  the  retailers  who  need  it  most.  The  job- 
ber can  act  in  the  capacity  of  a  clearing  house  on  mer- 
chandise information  from  every  possible  source. 

15.  Trade  extension  trips. — Another  effective 
means  of  cooperating  with  the  retailer  comes  in  con- 
nection with  "trade  extension  excursions."  A  num- 
ber of  executives  of  the  various  wholesale  houses  in 
different  lines  in  a  city,  charter  a  special  train  and 
visit  the  retail  trade  in  a  series  of  towns  in  their  terri- 
tory. This  method  enables  them  to  meet  their  cus- 
tomers and  establish  friendly  relations  with  them.  It 
also  offers  an  excellent  opportunity  for  the  jobber  to 
get  an  impression  of  the  customer's  capacity  and  re- 
liabihty,  as  well  as  of  his  requirements  with  respect 
to  additional  service. 

16.  Merchants'  weeks  or  seasons. — Another  way 
of  bringing  the  retailer  into  direct  contact  with  the 


100  WHOLESALE  MERCHANDISING 

jobber  is  to  conduct  merchants'  weeks  or  seasons. 
Instead  of  the  jobber's  visiting  the  retailer  himself,  the 
retailer  comes  to  the  jobber.  This  is  usually  handled 
by  an  association  of  jobbers  of  a  city  or  by  the  whole- 
sale trade  department  of  the  Chamber  of  Commerce. 
The  first  inducement  is  a  refund  of  carfares  to  those 
who  purchase  a  stated  amount  from  jobbers  of  the 
city.  A  series  of  lectures  on  retail  merchandising  is 
usually  offered  during  the  period.  The  lecturers  are 
the  best  men  to  be  obtained,  and  the  course  is  well  ad- 
vertised in  advance  so  as  to  insure  a  representative 
gathering.  The  plan  is  used  with  much  success  by 
various  jobbers'  associations  in  the  Middle  West. 

17.  Checking  7/7;  results  from  dealer  service. — 
Because  of  his  frequent  visits  to  the  different  retailers 
in  his  territory,  the  jobber's  salesman  better  than  any- 
one else  can  keep  track  of  results  from  dealer  service. 
If  he  is  the  right  kind  of  salesman  he  will  be  con- 
stantly on  the  alert  to  watch  any  change  in  the  re- 
tailer's store.  It  will  not  be  difficult  for  him  to  note 
wliether  the  advertising  material  furnished  by  the  job- 
ber has  been  used  or  not.  He  can  easily  see  whether 
the  retailer's  clerks  are  improving  their  salesmanship. 
The  jobber's  salesman  is  usually  allowed  to  roam  all 
about  the  store,  and  in  so  doing  he  can  have  a  talk  with 
the  credit  man  or  the  bookkeeper,  and  find  out  whether 
the  accounting  help  given  by  the  jobber  has  been  used 
and  whether  the  retailer  has  established  his  credit 
department  on  a  more  efficient  basis.  The  salesman 
should  be  required  to  report  to  the  jobber  the  results 


COOPERATING  WITH  RETAILER  101 

of  his  visits,  and  in  all  cases  the  data  should  be  indexed 
and  filed  away  for  future  reference. 

When  electros  are  supplied  for  advertising  service, 
some  jobbers  employ  a  newspaper  clipping  bureau  to 
clip  the  advertisements  of  the  retailer  and  turn  them  in 
to  the  jobber.  This  is  perhaps  the  most  efficient 
means  of  checking  this  form  of  service.  Another 
method  for  checking  service  is  to  inclose  a  return  pos- 
tal card  with  the  material  sent  to  the  retailer,  with  a 
form  on  the  back  for  the  retailer  to  fill  out.  Here  are 
some  of  the  questions  included  on  the  card  sent  out  by 
a  prominent  manufacturer  of  silverware: 

1.  Have  you  found  the  advertising  aid  helpful  to  you? 
9.   What  change  or  improvements  would  you  suggest? 

3.  Have  you  used  the  window  display  matter  sent  you? 

4.  Can  you  trace  any  direct  results  in  sales  from  the  use 
of  this  material? 

5.  What  results  can  you  trace  from  the  use  of  circulars 
or  other  helps  which  we  have  furnished  you? 

This  manufacturer  reports  that  less  than  half  of 
these  cards  are  returned,  but  nevertheless  he  feels  well 
satisfied  with  the  results  he  is  able  to  secure. 

In  order  to  tabulate  the  results  it  is  necessary  to 
have  a  card  index  of  all  dealers  to  whom  such  service 
has  been  supplied.  These  cards  should  contain  a  rec- 
ord of  all  advertising  material  sent  to  the  dealer,  the 
nature  of  all  other  service  furnished  him,  the  use  he 
has  made  of  it,  the  results  he  reports,  and  any  crit- 
icisms or  suggestions  received  from  the  dealer  rela- 
ti^'e  to  this  advertising  material  or  service  in  general. 


102  WHOLESALE  MERCHANDISING 

The  salesman's  report  on  the  kind  of  help  the  dealer 
can  use  and  prefers  is  also  recorded  on  each  dealer's 
card. 

REVIEW 

What  are  the  common  forms  of  dealer  aids  used  by  jobbers? 

What  do  vou  consider  the  most  valuable  form  of  dealer  co- 
operation ?     Why  ? 

How  may  house  organs  be  made  most  valuable  to  the  retailer? 

What  do  you  consider  the  best  method  of  improving  the  stand- 
ard of  retail  salesmanship? 

How,  also,  may  the  jobber  help  increase  the  retailer's  sales 
efficiency  ? 

How  may  dealer  service  be  best  checked  and  improved  ? 


CHAPTER  A^II 

OPERATING  THE  BUSINESS 

1.  Function  of  the  operating  division, — We  have 
already  discussed  the  financial,  production  or  mer- 
chandising, and  sales  divisions.  It  is  obvious  that 
there  must  be  an  accounting  division.  In  a  jobbing 
concern  it  is  found  advisable  to  include  with  the  ac- 
counting division,  all  the  other  clerical  and  miscella- 
neous departments  which  are  not  limited  in  their 
function  entirely  to  financing,  buying  and  selling. 
Various  names  are  given  to  this  combination  division. 
The  most  appropriate  seems  to  be  "operating  divi- 
sion," suggested  by  the  National  Wholesale  Dry 
Goods  Association.  The  duties  of  the  operating  di- 
vision are  to  handle  the  merchandise,  keep  up  the 
physical  plant  used  by  the  business,  and  record  all  the 
activities  that  are  necessary  to  its  operation.  The  re- 
lation of  these  detailed  activities  and  their  respective 
departments  to  the  remainder  of  the  organization  will 
be  gi-asped  readily  from  the  general  organization 
chart  facing  page  40. 

2.  House  manager. — The  house  manager  has  un- 
der his  immediate  supervision  nearly  all  the  clerical 
force  of  the  operating  divisions.  In  many  concerns  he 
is  responsible  also  for  the  employment,  training  and 

103 


104  WHOLESALE  MERCHANDISING 

disciplining  of  all  clerical  employes,  including  those 
detailed  to  work  in  the  financial,  merchandise  and  sales 
divisions.  It  is  generally  conceded  that  the  best  re- 
sults may  be  obtained  in  this  way  thru  the  setting  of 
uniform  standards.  In  a  large  concern,  where  it  is 
impossible  for  one  man  to  do  all  the  work,  an  office 
manager  looks  after  the  details  of  supervising  the  gen- 
eral office,  and  a  house  superintendent  performs  a  like 
function  in  connection  with  the  work  of  the  remaining 
departments  in  the  warehouse. 

The  work  of  the  house  manager  is  to  plan  and  de- 
velop the  systems  used  in  the  various  departments  of 
the  operating  division.  He  sets  standards  for  the 
employes  generally  and  for  each  department  spe- 
cifically, formulates  the  house  policies,  devises  scien- 
tific units  for  efficient  work  in  each  department,  and 
corresponding  wage  systems,  looks  after  the  training 
of  emploj^es  and  their  welfare,  and  in  all  this  work 
he  seeks  to  develop  that  esprit  de  corps  which  is  so 
necessary  to  the  successful  operation  of  any  business. 

3.  House  policies. — In  this  connection  we  are  con- 
cerned with  internal  house  policies.  The  most  im- 
portant house  policy  relates  to  the  problem  of  employ- 
ment. If  an  esprit  de  corps  is  to  be  developed  in  the 
office  force,  both  management  and  employes  must  real- 
ize that  any  business  concern  is  founded  on  the  co- 
operation of  capital  and  labor.  This  is  the  funda- 
mental principle  on  which  a  successful  jobbing 
business  is  to  be  erected.  It  is  as  necessary  to  have 
an  enthusiastic  corps  of  office  emploj^es  as  it  is  to 


OPERATING  DIVISION  105 

have  the  same  spirit  of  eiithiisiasin  instilled  in  a  sales 
force.  The  work  must  begin  with  the  employment  of 
only  such  people  as  have  possibilities  for  development 
for  the  executive  positions  in  the  house  or  sales  force. 
For  each  employe  there  must  be  set  a  definite  line  of 
development  and  advancement.  This  requires  sys- 
tematic training  and  proper  working  conditions.  A 
jobbing  business  calls  for  the  efficient  handling  of  an 
enormous  amount  of  routine  work  at  a  small  cost  per 
unit,  and  the  only  way  this  work  can  be  done  success- 
fully is  to  employ  a  thoroly  trained  force,  in  which 
each  member  is  an  understudy  to  some  higher  em- 
ploye. 

4.  Methods  of  employment. — All  positions,  except 
under  extraordinary  circumstances,  are  filled  by  pro- 
motion. In  many  jobbing  concerns  the  highest  of- 
ficers have  come  up  thru  the  ranks  from  the  posi- 
tion of  office  boy  or  stock  clerk.  But  there  are  dis- 
advantages in  following  such  a  method  exclusively,  as 
people  who  have  come  up  thru  the  ranks  often  lack 
breadth  of  view.  They  are  inclined  to  think  that  be- 
cause something  has  always  been  done  in  a  certain 
way,  there  can  be  no  better  method.  As  a  result,  the 
methods  of  many  houses  are  old-fashioned  and  expen- 
sive. This  condition  is  being  changed  rapidly  as  more 
information  on  methods  of  up-to-date  houses  is  being 
made  available  and  competition  is  forcing  a  search  for 
more  efficient  methods. 

.5.  Standards  for  clerical  tmrh  and  wage  systems, — 
Just  as  in  the  case  of  factory  work,  standards  for  all 

MX     9 


106  WHOLESALE  MERCHANDISING 

operations  can  be  set.  One  dry-goods  house  has 
standards  for  every  type  of  work.  For  instance,  in 
its  correspondence  with  retailers,  in  which  a  form- 
paragraph  system  is  used,  this  firm  found  that  the 
stenographers  were  typing  an  average  of  fifty  letters 
a  day.  Since  the  company  was  satisfied  that  they 
were  not  working  up  to  reasonable  capacity,  a 
small  bonus  was  offered  on  all  typing  in  addi- 
tion to  the  fifty  letters  daily.  At  once  the  girls, 
with  apparently  no  special  effort,  began  doing 
an  average  of  seventy  letters  daily.  Finally,  in 
connection  with  a  general  wage  increase,  the  stand- 
ard day's  work  was  set  at  sixty-five  letters  and  a  bonus 
arranged  for  all  production  beyond  that,  together  with 
a  penalty  for  errors.  The  girls  are  now  doing  an 
average  of  seventy-five  to  eighty  letters,  while  the  typ- 
ing is  being  done  at  a  considerable  lower  cost  per  let- 
ter. In  the  same  way  standards  on  billing,  packing, 
shipping  and  all  other  lines  of  work  were  set.  By 
this  method  it  was  possible  to  increase  wages  per  per- 
son and  at  the  same  time  decrease  the  operating  ex- 
penses, get  out  the  orders  more  promptly  and  reduce 
the  percentage  of  errors.  This  wage  system  is  based 
on  a  straight  salary,  for  which  a  minimum  output  is 
required,  with  a  bonus  for  increased  output  and  a  pen- 
alty for  delays  and  errors.  In  addition,  sj)ecial 
bonuses  are  awarded  for  good  suggestions,  for  regu- 
larity and  promptness  in  attendance,  and  for  every 
other  factor  which  serves  to  measure  an  employe's 
usefulness  to  the  house.     From  these  bonuses   are 


OPERATING  DIVISION  107 

made  deductions  for  any  shortcomings,  such  as  tardi- 
ness, absence  and  the  like. 

6.  Instruction  and  welfare  worh. — Systems  of  in- 
struction such  as  are  used  in  retail  organizations  and 
are  described  in  Chapter  V,  Part  II,  are  coming 
into  use  in  wholesale  houses.  It  is  generally  con- 
ceded that  there  is  a  need  for  courses  in  salesmanship 
for  the  sales  force;  moreover,  there  is  a  like  need  for 
study  by  the  clerical  force  of  the  house  policies  and 
systems  in  general.  A  definite  training  in  the  work  of 
the  department  in  which  the  new  employe  is  to  work  is 
essential.  In  this  connection  a  manual  of  operations, 
explaining  in  detail  the  function  and  system  of  each 
department,  together  with  samples  of  the  forms  used, 
is  of  great  value. 

Welfare  work  must  not  be  overlooked  in  any 
organization  where  the  chief  officers  cannot  come  in 
daily  contact  with  each  employe.  The  point  of  view 
should  be  one  of  cooperation  if  each  employe  is 
to  do  his  best  work,  rather  than  the  patronizing  atti- 
tude so  noticeable  when  welfare  work  first  came  into 
prominence. 

7.  General  office. — While  the  number  of  depart- 
ments in  the  general  office  varies  with  the  kind  and 
size  of  the  business,  the  functions  to  be  performed  in 
each  are  uniform  in  most  jobbing  houses.  From  a 
functional  standpoint  it  does  not  matter  whether  the 
extensions  on  the  invoices  are  checked  by  the  billing 
department  or  by  a  separate  profit  and  cost  depart- 
ment.    It  is  easier  to  explain  the  different  functions. 


108  WHOLESALE  MERCHANDISING 

however,  when  each  department  is  hmited  to  one  par- 
ticular activity.  Since  there  are  eleven  distinct  func- 
tions in  the  average  wholesale  house,  an  organization 
system  is  here  described  in  which  these  functions  are 
represented  by  eleven  distinct  departments.  The 
different  departments  will  be  discussed  in  the  order 
in  which  a  customer's  order  would  pass  thru  them. 

8.  Order  and  registry  departments. — After  the  or- 
der has  been  checked  by  the  sales  department  to  show 
that  it  is  satisfactory  in  regard  to  terms,  prices  and 
the  like,  it  is  passed  to  the  credit  department  for  ap- 
proval. It  is  then  registered  in  the  order  book.  This 
may  be  termed  the  book  of  original  entr}^  Cards 
may  be  used  instead  of  a  book.  The  order  book  shows 
the  name  and  address  of  the  purchaser,  the  date,  the 
salesman,  the  order  number,  the  kind  of  order  and  the 
departments  represented.  After  the  goods  have  been 
shipped,  the  date  of  shipment  is  entered  from  the  ship- 
ping ticket.  The  order  number,  or  registry  number, 
as  it  is  more  frequently  called,  appears  on  all  records 
thereafter  connected  with  this  particular  order  and  is 
the  basis  for  its  identification.  Orders  are  registered 
numerically  and  entered  in  the  order  book  as  they  are 
received. 

In  most  houses  the  order  department  is  responsible 
for  the  preparation  of  duplicates  of  the  order,  which 
are  sent  to  each  department  concerned,  so  that  each 
may  work  on  the  order  at  the  same  time.  In  Sprague, 
Warner  and  Company  of  Chicago,  the  salesmen  are  re- 
quired to  make  out  their  orders  with  an  indelible  pen- 


OPERATING  DIVISION  111 

person,  the  lost  time  must  be  reported  at  once  to  the 
office  manager  or  house  superintendent;  otherwise  the 
clerk  who  received  the  order  late  will  be  held  respon- 
sible for  holding  it  longer  than  necessary. 

The  maximum  time  allowed  each  person  to  take 
care  of  his  part  in  filling  an  order  is  worked  out  in 
advance.  In  one  large  Chicago  wholesale  house,  the 
maximum  time  from  the  moment  the  order  is  received 
until  it  is  filled  and  out  of  the  house  is  three  hours, 
while  the  average  time  is  slightly  under  two  hours. 

10.  Order  department  reports. — The  process  of  fill- 
ing the  order  really  begins  in  the  order  department. 
It  is  the  function  of  this  department  to  keep  track  of 
it  and  particularly  to  observe  the  promptness  with 
which  it  is  filled.  The  form  on  page  112  is  used  for 
this  purpose  in  one  large  concern  which  is  making  an 
enviable  record  for  success  in  fiUing  orders  the  day 
they  are  received. 

11.  Order  and  registry  for  mail  orders. — A  number 
of  concerns  have  a  special  department  to  handle  all 
orders  received  thru  the  mails,  while  in  others  the 
order  and  registry  department  takes  care  of  them. 
The  volume  of  business  received  by  mail  should  deter- 
mine whether  a  separate  mail-order  department  is 
desirable.  Such  a  department  has  an  advantage  be- 
cause much  discretion  is  required  to  make  sure  that 
the  desired  goods  are  properly  selected.  Frequently 
mail  orders  are  ambiguous,  and  therefore  someone 
must  be  able  to  interpret  the  retailer's  needs  correctly. 
The  plan  is  identical  with  that  of  the  mail-order  de- 


112 


WHOLESALE  MERCHANDISING 


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OPERATING  DIVISION  113 

partment  in  a  department  store,  where  mail-order 
shoppers  are  sent  out  with  each  order  to  select  the 
desired  goods  from  stock. 

12.  Traffic  department. — The  work  of  the  traffic 
department  is  to  check  up  freight  charges  on  both 
incoming  and  outgoing  goods  and  make  claims,  when 
necessary,  to  the  transportation  company.  In  the 
case  of  incoming  goods,  the  traffic  man,  in  many 
houses,  checks  all  future  orders  to  make  sure  that  the 
best  route  and  the  lowest  rate  consistent  with  the  type 
of  merchandise  ordered  is  specified.  A  good  traffic 
man  can  save  his  salary  by  checking  the  freight  costs 
on  incoming  merchandise  and  making  claims  for 
overcharges,  except  possibly  in  such  cities  as  New 
York,  where  so  much  of  the  merchandise  is  obtained 
from  local  wholesalers.  But  the  main  work  of  the 
traffic  man  is  in  connection  with  outgoing  shipments. 
Generally  the  shipping  route  is  specified  by  the  pur- 
chaser, but  as  freights  are  often  prepaid  there  still 
arises  a  possibility  of  saving.  For  instance,  large 
New  York  jobbers  ship  in  bulk  to  Galveston  and  then 
contract  with  Galveston  cartage  firms  to  receive  and 
deliver  or  reship  the  goods.  It  is  the  duty  of  the 
traffic  manager  to  arrange  such  special  means  as  this 
whenever  desirable  and  then  check  the  freight  bills 
to  see  that  these  instructions  are  followed  and  that  the 
lowest  possible  rates  are  obtained. 

The  traffic  man  has  another  function  in  connection 
with  claims.  Most  jobbing  houses  feel  that  they  are 
better  qualified  than  the  customer  to  follow  up  claims 


114  WHOLESALE  MERCHANDISING 

for  damage  to  goods  in  transit.  This  work  frequently 
takes  a  large  part  of  the  time  of  the  traffic  department 
force,  and  in  handling  it  the  jobbing  concern  is  per- 
forming a  real  service  for  its  customers. 

13.  Contract  department. — Jobbers  usually  pur- 
chase some  commodities  on  long-term  contracts. 
This  is  particularly  the  case  during  such  periods  of 
rising  prices  as  occurred  in  1916.  Buying  by  contract 
is  an  important  part  of  the  jobber's  activity  because 
of  the  speculative  possibilities  in  market  operations. 
Such  contracts  are  recorded  and  looked  after  by  the 
contract  department,  tho  in  many  concerns  the  con- 
tract department  is  a  part  of  the  merchandise  division 
rather  than  a  part  of  the  general  office.  When  con- 
tracts for  futm'e  deliver}^  are  made  by  buyers,  records 
are  provided,  and  as  deliveries  are  made  the  records 
are  checked  after  the  fashion  of  a  cumulative  inven- 
tory, to  show  how  much  has  already  been  delivered 
and  how  much  remains  to  be  delivered  on  the  contract. 
It  is  necessary  also  to  make  sure  that  contract  agree- 
ments are  being  maintained.  When  goods  are  re- 
ceived too  soon,  unnecessary  expense  for  warehousing 
and  insurance,  as  well  as  for  interest  on  capital,  is  in- 
curred. If  goods  are  received  too  late,  a  loss  of  sales 
and  a  general  confusion  of  the  merchandise  plan  may 
follow.  It  is  therefore  a  necessity  to  keep  constantly 
checking  the  records  of  delivery  against  the  various 
contracts. 

Another  important  activity  frequently  assigned  to 
this  department  is  the  recording  and  filing  of  back 


OPERATING  DIVISION  115 

orders,  as  weU  as  advance  orders,  from  customers. 
Even  when  stocks  are  most  carefully  regulated,  thei-e 
are  likely  to  be  times  when  certain  lines  are  short,  or 
"out  of  stock."  When  an  order  for  immediate  deliv- 
ery comes  in,  shipment  is  made  of  items  in  stock.  If 
the  order  calls  for  goods  out  of  stock  a  record  is  made 
of  the  goods  short.  Each  line  short  is  put  on  a  sep- 
arate card  and  then,  as  the  stock  is  replenished,  ship- 
ment is  made.  Customers  are  advised  to  purchase 
elsewhere  or  to  reorder  later  if  the  delay  is  likely  to 
be  lonff  or  if  the  amount  of  the  back  order  is  too  small 
to  make  up  a  separate  shipment. 

A  record  is  also  kept  of  orders  taken  for  future  de- 
livery. In  most  jobbing  lines,  a  large  part  of  the 
business  is  obtained  some  months  in  advance  of  sea- 
sonal requirements  on  the  part  of  dealers.  For  in- 
stance, in  the  dry-goods  business,  orders  for  fall  mer- 
chandise will  be  taken  between  January  1  and  June  15 
preceding,  and  these  are  entered  up  for  delivery  in 
August  or  September.  Because  of  the  advantage  to 
the  jobber  in  getting  orders  in  advance,  an  extra  or 
"stock  order"  discount  is  sometimes  allowed  as  an  in- 
ducement. 

14.  Billing  department. — In  some  wholesale  houses, 
in  order  to  expedite  the  work,  the  bills  are  made  out 
while  the  goods  are  being  selected  and  packed.  In 
many  houses  the  billing  is  done  in  the  packing  room. 
This  method  is  not  so  successful  in  grocery  houses, 
where  goods  need  little  or  no  packing,  as  they  are  sold 
largely  in  the  original  containers.     The  simplest  way 


116  WHOLESALE  MERCHANDISING 

is  to  have  the  original  order,  together  with  the  floor 
sheets  if  any  are  used,  and  the  hill  of  lading  returned 
to  the  general  office  as  soon  as  goods  are  shipped. 
Then  the  invoice  can  be  made  out  from  complete  in- 
formation. Houses  which  use  this  method  succeed  in 
mailing  invoices  on  the  same  day  that  the  goods  are 
shipped.    This  should  be  the  rule  everj^where. 

15.  Claim  department. — All  claims  made  by  dealers 
for  credit  on  goods  returned  are  handled  by  the  claim 
department.  Claims  against  the  transportation  com- 
panies, however,  are  usually  tin*ned  over  to  the  traffic 
department.  Since  the  volume  of  goods  returned  by 
the  dealer  to  jobbers  is  great,  the  work  of  this  de- 
partment is  very  important.  The  dealer  must  be 
satisfied  or  he  will  be  lost  as  a  customer,  and  it  there- 
fore behooves  every  jobber  to  establish  a  liberal  but 
firm  policy  and  an  organization  for  handling  these 
claims. 

16.  Profit  and  cost  department. — In  every  jobbing 
business  a  profit  and  cost  department  is  essential,  for 
it  is  the  source  of  the  most  valuable  statistics — those  on 
sales  and  profits.  As  soon  as  the  invoices  are  made 
out,  they  are  sent  here  for  auditing.  The  prices  are 
checked  and  then  the  extensions  are  verified  by  means 
of  a  non-listing  adding  machine.  Next  the  profits 
are  figured  and  entered  on  either  the  original  order 
or  on  the  carbon  of  the  invoice,  which  is  retained  for 
the  office  files.  From  the  total  of  profits,  the  cartage 
is  deducted  to  give  the  gross  profit  to  the  house.  Next 
a  slip  is  made  out  to  show  the  total  amount  of  each 


OPERATING  DIVISION 


117 


order  for  each  department  and  the  gross  profit  to  each 
department. 

In  the  large  concerns,  the  figuring  is  done  on  a  tabu- 
lating machine.  A  card  is  punched  for  each  order, 
showing  the  number  of  the  salesman,  the  date  of  the 
order,  the  totals  of  the  sale  for  each  department  and 
the  corresponding  profits.  Then  by  running  thru  the 
tabulating  machine  all  tlie  cards  representing  one 
day's  business,  any  desired  combination  can  be  ob- 
tained, such  as  the  totals  for  the  day  of  a  department, 
of  a  salesman  or  of  a  section  of  the  country.  These 
cards  are  kept  for  several  months,  so  that  any  desired 
combination  of  statistics  can  be  had  on  short  notice 
for  any  period. 


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8  88 

9  9  9 


OiO  0  olo  0 

1 11  iTfi  1 

I  I 

212  2  2i2  2 
I  I 

313  3  3l3  3 


4  4  4  4;4  4 
515  5  5!5  5 

e'e  6  616  6 

-f -r-  — 

7  7  7  717  7 

I  I 

8;8  8  8[8  8 

9|9  99199 


0  0  0|0  0 

i"ri|rv 

2  2  2i2  2 

3  33133 


4  4  414  4 

5  5  5;5  5 

6  6  616  6 

7  7  7|7  7 

8  8  8|8  8 

9  9  9j9  9 


At  the  end  of  the  month  each  salesman  receives  a 
statement  of  his  total  sales  and  profits,  together  with 
a  statement  of  the  same  month  of  the  previous  year, 
as  in  the  exhibit. 


118 


WHOLESALE  MERCHANDISING 


17.  Bookkeeping  department. — The  duplicate  copy 
of  the  invoice,  together  with  the  original  order,  now 
goes  to  the  accounting  department,  where  they  are 


Form  126.    2M  7-10-16. 


V  )  'ymjjbh. 


.Salesman 


19 

,e 

SAME  MONTH  LAST  YEAR 

DEPARTMENTS 

SALES 

PROFITS 

PER 
CENT 

SALES 

PROFITS 

PER 
CENT 

1  Suffar 

1480 

iO 

2  Tea 

1850 

250 

3  Coffee 

2100 

250 

4   Tobacco 

258 

18 

^  (Flour 
■*  (Cereals 

720 

72 

(Molasses 
''(Syrup 

200 

20 

7  Cbeese 

483 

42 

Dried 
**  Fruits 

342 

18 

Canned 
^   Goods 

1500 

300 

10   Fish 

150 

^  Miscellane 
ous 

1375 

j^2  Manu- 
facturing 

13  Cigars 

230 

j^  (Fancy 
(Groceries 

325 

Total 

Cartage 

Allowances 

Net 

OPERATING  DIVISION  119 

posted  after  the  usual  fashion.  The  orders  are  next 
filed  away  alphabetically  according  to  the  customer's 
name. 

18.  Cashier,  stenographers  and  miscellaneous  gen- 
eral ofpce  employes. — The  cashier  receives  all  money 
which  is  paid  to  the  concern  on  account  of  goods  pur- 
chased, and  renders  a  daily  statement  in  quadrupli- 
cate; one  goes  to  the  auditor,  one  to  the  credit  man, 
one  to  the  accounting  department,  while  the  fourth  is 
filed  in  the  cashier's  office.  This  statement  gives  a 
list  of  amounts  received  and  states  what  accounts 
should  be  credited.  The  duties  of  the  stenographic 
force  and  telephone  operators  are  obvious. 

19.  Warehouse  department. — The  employes  con- 
nected with  the  receiving  and  shipping  of  the  goods 
and  all  those  engaged  in  taking  care  of  the  building 
used  by  the  concern  are  included  in  the  warehouse  de- 
partment, which  in  large  concerns  is  under  the  direc- 
tion of  the  house  superintendent.  Both  he  and  the 
office  manager  report  direct  to  the  treasurer,  who  also 
acts  as  house  manager  in  general  charge  of  the  operat- 
ing division.  This  relation  which  the  house  superin- 
tendent bears  to  the  organization  as  a  whole,  and  the 
general  outline  of  his  department  is  shown  on  the  or- 
ganization chart  facing  page  40. 

20.  Receiving  department. — All  goods  which  are 
ordered  by  the  merchandise  division  are  received  by 
the  receiving  department,  which  is  responsible  for  see- 
ing that  they  are  in  good  condition.  The  receiving 
clerk  makes  out  on  a  blank  form  a  list  and  a  descrip- 


120  WHOLESALE  MERCHANDISING 

tion  of  all  merchandise  received  in  connection  with  the 
invoice  or  the  pui'chase  order.  This  is  sent  to  the  mer- 
chandise office,  where  it  is  checked  against  the  original 
purchase  order  to  make  sure  the  goods  are  as  ordered. 
It  used  to  be  customary  to  check  against  the  invoice 
goods  received  in  the  receiving  department.  The 
hurried  or  careless  receiving  clerk  checked  as  having 
been  received  in  good  condition  much  merchandise 
which  was  short  or  damaged.  The  receiving  clerk 
holds  the  goods  until  he  gets  authority  from  the  mer- 
chandise office  to  send  them  to  stock.  As  was  re- 
marked in  the  chapter  on  Merchandising  the  Busi- 
ness, each  buyer  supervises  his  own  stock,  while  the 
house  manager  or  superintendent  inspects  and  regu- 
lates the  physical  condition  of  the  stocks  and  the  meth- 
ods of  storage. 

21.  Packing  department. — Reference  has  already 
been  made,  in  connection  with  the  discussion  of  the 
order  department  system,  to  the  various  ways  of  hand- 
ling orders.  The  organization  of  the  packing  room 
depends  on  the  order  system  used.  In  dry-goods 
houses  a  general  packing  room  is  necessary,  while 
grocery  houses  need  an  assembling  room,  except 
when  items  are  required  in  less  than  full  package  lots. 
Many  houses  have  their  own  box-making  plants  with 
automatic  machinery ;  in  dry-goods  houses  the  baling 
machines  are  included  in  the  equipment  of  the  pack- 
ing room. 

It  is  the  duty  of  the  chief  clerk  of  the  packing  de- 
partment and  of  his  assistants  to  check  over  the  goods 


OPERATING  DIVISION  1^1 

sent  from  the  warehouse  stock  with  the  customer's 
order.  If  he  passes  the  order,  the  goods  called  for 
are  supposed  to  have  been  shipped  and  the  invoice 
is  made  accordingly.  For  this  reason  it  is  essential 
that  the  checking  be  done  accurately. 

22.  Shipping  department. — The  shipping  clerk 
makes  out  the  bill  of  lading  and  labels  the  shipment. 
In  many  concerns  the  requisite  number  of  labels  are 
made  in  the  order  and  registry  department,  and  each 
shows  what  goods  are  to  be  shipped  on  it.  The  street- 
men  check  each  outgoing  shipment  to  make  sure  that 
nothing  goes  out  that  is  not  under  a  regular  label. 
The  idea,  of  course,  is  to  prevent  shipping  clerks 
from  shipping  goods  irregularly.  The  order  is  now 
ready  to  be  taken  to  the  freight  house  for  shipment. 
Copies  of  all  bills  of  lading  are  filed  in  the  shipping 
department,  or  attached  to  the  original  order  when  it 
is  returned  to  the  billing  department.  City  deliveries 
are  handled  in  much  the  same  way,  except  that  a  de- 
livery ticket  is  made  out  instead  of  a  bill  of  lading. 

REVIEW 

What  functions  are  performed  by  the  operating  division?  Into 
wliat  departments  is  this  division  usually  divided? 

Why  are  wise  house  policies  particularly  necessary  for  a  job- 
bing house? 

What  do  you  think  should  determine  the  location  of  depart- 
ments in  the  w^arehouse  office? 

What  is  the  importance  of  the  traffic  department?  Tlie  con- 
tract department?     The  profit  and  cost  department? 

Why  is  it  desirable  to  have  invoices  made  out  in  the  packing 
room  ? 

XFX-lO 


CHAPTER  IX 

MANUFACTURING  JOBBER  AND  SEMI-JOBBER 

1.  Manufacturing  jobber  defined. — The  ternij 
manufacturing  jobber,  is  applied  properly  only  to  the 
jobber  who  actually  manufactures  and  brands  the 
merchandise  which  he  sells  at  wholesale.  Some  ac- 
tivities which  might  be  considered  manufacturing 
functions,  such  as  sorting,  cleaning  and  roasting 
coffee,  have  always  been  considered  within  the  scope 
of  the  regular  jobber  and  so  do  not  put  him  in  the 
class  of  manufacturing  jobbers.  It  is  necessary,  also, 
to  distinguish  the  manufacturing  from  the  private- 
brand  jobber  who  buys  goods  in  bulk  and  puts  them 
up  in  packages  under  his  own  brand. 

2.  Why  jobbers  manufacture. — Various  reasons  are 
given  by  jobbers  for  manufacturing  their  own  goods, 
but  seldom  do  two  jobbers  give  identical  reasons.  In 
fact,  the  reasons  for  manufacturing  are  not  the  same 
for  every  department  of  the  same  house.  The  most 
common  reasons  given  by  jobbers  for  manufacturing 
are  the  following: 

a.  In  many  lines,  the  profit  on  both  staples  and 
manufacturers'  specialties  is  insufficient,  and  in  such 
lines  the  jobber  must  add  a  manufacturer's  profit  in 
order  to  make  any  money. 

"  122 


JOBBER  AND  SEMI-JOBBER  123 

b.  It  is  necessary  to  control  the  quality  of  the  goods, 
especially  in  food  products, 

c.  There  is  an  advantage  in  handling  goods  in  bulk, 
and  thus  saving  not  only  warehouse  space,  but  also 
loss  from  broken  containers  and  soiled  packages. 
The  goods  may  be  put  into  packages,  as  required. 

d.  Control  of  the  market  thru  conti'ol  of  both  the 
manufacture  and  the  marketing  of  particular  brands 
has  obvious  advantages.  It  is  claimed  that  the  jobber 
who  manufactures,  brands  and  advertises  a  line  suc- 
cessfully creates  a  consumer  demand  which  forces  the 
dealer  to  come  to  him  to  buy  these  goods. 

e.  The  trade  of  chain  stores,  department  stores  and 
buying  exchanges  which  would  otherwise  go  to  the 
manufacturer,  may  be  diverted  to  the  jobber  if  he 
is  prepared  to  manufacture  his  own  goods. 

f.  The  possibility  of  bringing  out  new  lines  ahead 
of  the  manufacturer  is  a  further  advantage. 

g.  Manufacturing  gives  the  jobber  the  opportunity 
of  selling  to  retailers  who  are  competing  with  one  an- 
other, because  he  can  make  up  a  special  brand  for 
each  retailer. 

h.  Manufacturing  leaves  the  jobber  free  to  follow 
his  own  interpretation  and  analysis  of  the  demand  in 
every  respect  and  to  act  accordingly.  One  dry-goods 
jobber  increased  his.  turnover  from  twice  to  nine  times 
in  one  line,  by  manufacturing  the  goods  to  meet  his 
own  trade's  demand. 

i.  A  small  manufacturer  whose  line  is  so  limited  as 
to  prevent  his  establishing  a  sales  organization  may  be 


124  WHOLESALE  MERCHANDISING 

given  an  opportunity  to  enlarge  his  business  by  be- 
coming a  manufacturing  jobber. 

j.  The  jobber  may,  by  manufacturing,  be  able  to 
improve  the  source  of  supply  of  merchandise. 

k.  The  prestige  which  comes  from  manufacturing 
the  goods  sold  offers  a  strong  inducement  to  many 
jobbers  to  undertake  manufacturing. 

1.  The  personal  desire  on  the  part  of  the  jobber  to 
develop  into  a  manufacturer  is  a  further  inducement. 

Large  manufacturing  jobbers  in  the  grocery  line 
frequently  consider  the  last  two  points  as  the  strong- 
est reasons  for  entering  the  manufacturing  field. 

3.  Methods  of  organization, — In  the  business  of  the 
manufacturing  jobber,  the  manufacturing  unit  may  be 
run  as  separate  from  the  wholesale  department  and 
have  all  the  functions  of  a  complete  manufacturing 
business.  An  expert  in  manufacturing  is  engaged  as 
factory  manager.  A  complete  accounting  and  cost 
system  for  the  factory  is  maintained,  and  prices  to  the 
wholesale  department  of  the  business  are  figured  so  as 
to  show  a  profit,  if  possible,  for  the  factor}^  Fre- 
quently the  factory  is  incorporated  separately,  tho 
both  concerns  may  have  the  same  officers.  Sales  are 
frequently  made  from  the  factory  to  other  jobbers. 

Under  another  plan  of  organization,  each  depart- 
ment of  the  jobbing  business  does  such  manufacturing 
as  may  seem  advisable.  For  instance,  the  buyer  of 
vanilla  extracts  may  decide  to  manufacture  instead 
of  buy  extracts  in  the  open  market.     It  is  a  com- 


JOBBER  AND  SEMI-JOBBER  125 

paratively  simple  matter  to  obtain  the  vanilla  beans 
thru  a  broker  or  an  importing  house  and  to  instal  the 
necessary  machinery  for  grinding  the  beans  and  for 
preparing  and  bottling  the  extract. 

4.  Relative  advantages  of  the  two  types  of  organ- 
ization,— The  type  of  organization  to  be  employed 
must  depend  on  conditions,  such  as  the  amount  of 
manufacturing  to  be  done  and  the  kind  of  goods  to 
be  manufactured.  Concentration  of  the  manufac- 
turing helps  to  bring  about  a  large-scale  production 
which  largely  reduces  the  cost  of  the  finished  product. 
Furthermore,  under  a  separate  factory  system  it  is 
easier  to  allocate  costs  and  to  arrive  at  a  correct  fig- 
ure for  each  step  in  the  process,  as  well  as  for  the 
total  cost  of  the  finished  product.  Some  jobbers 
maintain  that  this  plan  produces  friction  between 
manufacturing  and  sales  department  to  the  point  of 
defeating  the  abihty  to  meet  competition. 

Those  jobbers  who  are  in  favor  of  puttuig  each 
buyer  in  charge  of  the  manufacture  of  his  own  par- 
ticular line,  maintain  that  a  considerable  saving  re- 
sults from  a  combination  of  the  buying  and  manu- 
facturing function  in  each  department.  They  believe 
that  the  buyer's  expert  knowledge  of  the  requirements 
which  the  product  must  meet  make  him  better  able 
to  supervise  the  manufacturing  than  someone  less  fa- 
miliar with  the  public  demand.  They  contend,  fur- 
ther, that  it  is  quite  possible  for  one  man  to  supervise 
both  manufacturing  and  buying,  and  in  support  of 
their  contention  they  point  to  many  concerns  in  which 


126  WHOLESALE  MERCHANDISING 

each  buyer  manages  his  own  manufacturing.     The 
vanilla-extract  manufacturing  can  be  handled  best  in 

this  way. 

5.  Production  methods. — All  the  principles  of  fac- 
tory administration  are  applicable  to  the  business  of 
the  manufacturing  jobber.  Especially  is  this  true  of 
those  principles  that  govern  methods  of  routing  the 
work,  time  schedules,  the  use  of  labor-saving  and  time- 
saving  machinery,  standard  methods  of  operation  and 
premium  systems  for  wage  payments.  The  factory  sys- 
tems in  any  one  of  a  dozen  or  more  of  the  large  whole- 
sale groceiy  concerns  in  the  United  States  and  Canada 
are  models  of  industrial  organization  and  management. 

6.  Stockkeeping. — The  manufacturing  jobber 
keeps  most  of  his  stock  in  bulk,  packing  it  and  pre- 
paring it  for  shipment  only  as  the  demand  requires. 
In  this  way  he  saves  space  and  minimizes  the  number 
of  torn  or  soiled  packages  which  accumulate,  and  can 
arrange  his  storage  facilities  to  prevent  depreciation 
and  waste. 

When  a  separate  factory  is  maintained,  a  great 
part  of  the  saving  comes  from  large-scale  production. 
This  method  necessitates  packing  and  warehousing, 
tho  to  a  less  extent  than  other  manufacturers  require, 
since  the  certainty  of  the  outlet  makes  the  plan  for 
production  more  definite  than  those  of  the  ordinary 
manufacturer.  A  complete  stockkeeping  system  is 
maintained  at  the  factory. 

7.  Advertising  and  selling. — The  jobber  who  is  to 
create  and  put  on  the  market  a  brand  of  his  own  must 


JOBBER  AND  SEMI-JOBBER  127 

use  the  same  sort  of  intensive  advertising  that  the  spe- 
cialty manufacturer  uses.  oNIany  jobbers  feel  that 
manufacturing  furnishes  the  only  way  to  save  them- 
selves from  extinction.  Such  jobbers  must  take  their 
places  among  aggressive  advertisers,  and  that  they  are 
doing  so  is  evidenced  by  the  great  amount  of  national 
advertising  being  used  today  by  jobbers  in  national 
weeklies,  farm  papers,  city  dailies  and  country  week- 
lies. But  advertising  must  be  followed  up  by  the 
work  of  a  force  of  specialty  salesmen  who  handle  the 
private  brands  only. 

8.  Special  terms. — As  a  special  inducement  to  en- 
courage the  purchase  of  his  own  brands,  the  manufac- 
turing jobber  usually  offers  longer  terms  of  credit  on 
them  than  he  is  willing  to  offer  on  other  lines.  He  is 
making  a  correspondingly  larger  profit,  either  thru 
the  saving  resulting  from  manufacturing  or  thru  his 
ability  to  get  a  higher  price  on  his  own  lines.  More- 
over, in  his  capacity  as  manufacturer,  it  is  not  neces- 
sary to  give  long-term  credit  to  his  jobbing  depart- 
ment. This  saving  can  be  passed  along  to  the  re- 
tailer. Since  he  is  getting  both  a  manufacturer's  and 
a  jobber's  profit  he  has  a  wider  margin  on  which  to 
base  his  credit  terms. 

9.  Accounting  and  costkeeping. — In  either  type  of 
organization,  there  must  be  two  separate  sets  of  ac- 
counts; one  for  the  jobbing  business,  and  the  other 
for  the  manufacturing  business.  When  these  activi- 
ties are  separated,  the  accounting  system  charges  each 
unit  with  its  respective  expenses  of  doing  business — 


128  WHOLESALE  MERCHANDISING 

rent,  salaries,  light,  heat,  a  proportionate  cost  of  su- 
pervision on  the  part  of  those  who  divide  their  time 
between  the  two  units,  and  any  other  expense  which 
may  be  incurred  for  the  particular  department. 

10.  Pricing  goods  to  jobbing  departments. — When 
the  factory  is  conducted  as  a  separate  unit,  it  is  de- 
sirable to  show  a  profit  on  its  operation  in  addition  to 
a  surplus  to  cover  depreciation  on  machinery  and 
fluctuation  in  the  cost  of  raw  materials.  Prices  are 
based  on  the  cost  of  manufacture  and  the  conditions 
of  competition  in  the  line.  Even  then,  however,  it  is 
not  always  easy  to  rmi  the  factory  at  a  profit,  as  many 
manufacturing  jobbers  admit. 

When  each  buyer  does  his  own  manufacturing,  this 
is  generally  considered  as  a  substitute  for  buying  in 
the  open  market,  and  therefore  no  manufacturing 
profit  is  shown  on  the  books.  The  goods  are  charged 
to  the  house  at  the  cost  of  manufacture,  including 
overhead  and  interest  on  capital  invested.  Any  profit 
resulting  from  their  sale  to  other  jobbers  is  credited 
to  the  department  concerned  as  a  trading  profit. 
However,  the  cost  prices  given  to  the  salesmen  repre- 
sent the  current  market  prices  or  perhaps  a  trifle  less, 
rather  than  the  actual  cost  figures.  This  method  is 
entirely  correct,  because  the  salesman  has  no  interest 
in  the  manufacturing  and  is  therefore  not  entitled  to 
any  extra  profits  resulting  from  manufacturing.  He 
represents  only  the  marketing  unit  of  the  organiza- 
tion and  must  expect  to  work  on  a  basis  of  average 
market  prices. 


JOBBER  AND  SEMI-JOBBER  129 

11.  Definition  of  semi- jobber. — The  term  semi- 
jobber  is  applied  to  a  merchant  who  sells  at  retail  as 
well  as  at  wholesale.  Most  semi- jobbers  have  either 
added  a  retail  business  to  an  existing  wholesale  busi- 
ness, or  a  wholesale  business  to  an  existing  retail  busi- 
ness. In  only  a  few  cases  did  the  merchant  start  out 
at  the  beginning  to  conduct  both. 

12.  Reasons  for  development  of  semi- jobbing  busi- 
ness.— Various  reasons  have  led  to  the  development  of 
the  semi- jobbing  business.  The  prospect  of  the  dou- 
ble profit  furnishes  a  strong  inducement  to  undertake 
both  branches.  The  wholesaler  who  adds  a  retail 
branch  to  his  business  may  wish  to  have  a  guaranteed 
outlet  for  his  jobbing  business,  to  conduct  a  service 
station  for  retailers,  to  try  out  new  merchandise  plans, 
and  to  dispose  of  odd  or  broken  lots  or  any  slow-sell- 
ing stock. 

The  retailer  who  takes  on  the  jobber's  function  may 
wish  to  render  better  service  thru  ready  access  to  a 
wholesale  stock,  or  may  wish  to  establish  agents  thru 
his  increased  capacity  to  buy  in  jobbing  quantities. 
The  man  who  starts  in  business  with  both  branches 
may  be  actuated  by  any  of  the  above  reasons. 

13.  Organization. — When  the  wholesale  and  retail 
departments  are  operated  separately,  as  is  the  case 
in  Marshall  Field  and  Company,  the  plan  of  organ- 
ization is  similar  to  that  of  the  manufacturing  jobber 
who  operates  both  factory  and  wholesale  organizations 
as  separate  and  distinct  units.  In  cases  in  which  a  re- 
tail store  is  added  to  a  growing  wholesale  business. 


130  WHOLESALE  MERCHANDISING 

the  retail  function  is  frequently  handled  by  the  regu- 
lar wholesale  organization.  The  wholesale  and  retail 
stocks  are  not  separated,  nor  does  any  other  line  of 
demarcation  appear,  except  that  represented  by  the 
keeping  of  separate  accounts. 

When  the  jobbing  function  has  been  added  to  a 
retail  store,  the  wholesale  business  is  usually  handled 
by  a  special  wholesale  man.  A  separate  set  of  ac- 
counts is  kept  for  each  of  the  two  divisions.  The 
wholesale  man  takes  the  wholesale  customer  to  the 
department  in  which  he  is  interested  and,  with  the 
buyer  of  the  department,  shows  the  desired  goods. 
Special  prices  are  made  by  the  buyer  on  each  article, 
unless  wholesale  figures  are  made  in  advance.  A 
wholesale  business  of  this  sort  is  conducted  by  John 
Wanamaker  in  connection  with  his  retail  stores  in  New 
York  and  Philadelphia. 

In  houses  where  either  of  these  two  types  of  organ- 
ization is  found,  there  may  be  a  complete  organization 
for  both  wholesale  and  retail.  Generallv,  seffreg-ation 
begins  with  separate  accounts;  then  comes  a  separate 
show  room,  and  later  a  separate  open  stock  for  each, 
while  each  depends  on  the  same  buyers  and  the  same 
reserve  stocks.  Xext,  the  retail  manager  maj'-  feel  the 
need  of  keeping  his  line  complete  by  purchases  else- 
where and  thus  eventually  build  his  own  buying  force. 
In  fact,  in  most  of  these  organizations,  such  as  Straw- 
bridge  and  Clotliier,  Wholesale  and  Retail,  Phila- 
delphia, the  retail  buyers  are  not  required  to  buy 
from  the  wholesale  unit. 


JOBBER  AND  SEMI-JOBBER  131 

The  third  type  of  organization  is  used  by  the  firm 
of  Haniniacher,  Schlemmer  and  Company,  New 
York.  This  firm  has  handled  both  wholesale  and  re- 
tail business  since  the  founding  of  the  house.  A 
loose-leaf  j^rice  list  which  gives  both  wholesale  and 
retail  prices  is  issued  for  use  by  the  sales  force.  Cer- 
tain of  the  retail  salespeople  are  authorized  to  handle 
requests  for  wholesale  terms,  altho  most  of  the  whole- 
sale business  is  done  entirely  by  the  wholesale  de- 
partment offices.  Names  of  people  entitled  to  whole- 
sale prices  are  registered  and  full  information  neces- 
sary to  the  conduct  of  a  wholesale  business  is  main- 
tained in  order  that  the  firm's  dual  activities  may  not 
overlap  and  cause  confusion  and  ill-will  toward  the 
house. 

14.  Stockkeeping. — It  is  generally  conceded  that 
where  both  wholesale  and  retail  lines  of  business  are 
to  be  developed,  it  is  best  to  run  each  stock  independ- 
ently of  the  other.  In  such  a  case  two  stocks  are  main- 
tained. Sometimes  the  retail  business  depends  upon 
the  wholesale  stock  as  a  reserve.  Both  plans  are 
likely  to  insure  equally  careful  buying,  for  each  stock 
is  built  up  according  to  the  special  requirements  which 
it  must  meet.  There  is  also  increased  convenience  in 
handling.  Each  division  of  the  business  can  be  held 
responsible  for  its  own  stock,  whereas  if  both  work 
from  the  same  open  stock,  one  is  likely  to  blame  the 
other  for  any  failures  to  buy  and  keep  the  stock  prop- 
erly. If  one  division  is  merely  an  adjunct  of  the 
other,  planned  only  to  secure  a  little  extra  j)rofit  with- 


132  WHOLESALE  MERCHANDISING 

out  much  expense,  then  only  one  stock  should  be 
maintained. 

15.  Accounting. — One  of  the  most  common  causes 
of  trouble  in  semi- jobbing  comes  from  the  lack  of 
separate  accounts.  Frequently  one  department  or  the 
other  is  run  at  a  loss,  and  sometimes  the  one  which  is 
really  losing  money  is  considered  the  more  profita- 
ble. 

16.  Pricing  goods  to  retail  store. — The  problem  of 
fixing  prices  for  the  retail  store  is  analogous  to  that  of 
the  manufacturing  jobber.  Shall  the  jobbing  end  of 
the  business  show  a  jobbing  profit,  or  shall  it  be  con- 
sidered a  part  of  the  retail  buying  organization — a  de- 
vice to  get  quantity  prices  for  a  retail  concern?  If 
the  jobbing  work  is  to  show  a  profit,  full  current  mar- 
ket prices  will  be  charged  to  the  retail  store.  If  no 
jobbing  profit  is  desired,  the  actual  cost  of  the  mer- 
chandise is  charged  to  the  retail  unit,  and  to  this  is 
added  only  the  expense  of  operating  the  jobbing  unit. 
Sometimes,  too,  the  retail  division  is  considered  an 
outlet  to  the  wholesale.  In  such  a  case  the  full  re- 
ceipts of  the  retail  division  are  credited  to  the  jobbing- 
organization  and  against  these  is  charged  the  expense 
of  conducting  the  retail  business,  just  as  if  it  were  a 
branch  of  the  wholesale  selling  organization.  In 
other  words,  this  represents  a  direct  selling  expense 
against  the  wholesale  business.  In  case  the  prices  are 
made  so  as  to  show  an  intercompany  profit  in  selling 
goods  at  retail,  allowance  must  be  made  when  mak- 


JOBBER  AND  SEMI-JOBBER  133 

ing  up  a  consolidated  balance  sheet  just  as  for  a  hold- 
ing company. 

REVIEW 

Distinguish  between  the  manufacturing  jobber  and  the  semi- 
j  obber. 

What  reasons  given  by  jobbers  for  engaging  in  manufacturing 
do  you  consider  the  best? 

How  is  the  business  of  the  manufacturing  jobber  organized? 

What  causes  do  you  assign  for  the  development  of  the  semi- 
jobbing  business? 

Why  are  separate  accounts  for  the  divisions  of  the  business 
necessary? 


CHAPTER  X 

COOPERATIVE  JOBBING 

1.  Basic  reasons  for  the  cooperative  jobbing  idea. — 
A  variety  of  causes  have  contributed  to  the  existence 
of  the  group  purchasing  plan.  The  enormous  devel- 
opment of  department  stores,  chain  stores  and  mail- 
order houses,  in  the  last  few  years,  has  brought  greatly 
intensified  competition  from  the  standpoint  of  the  re- 
tailer, and  especially  of  the  comparatively  small  buyer. 
Retailers  realize  the  necessity  not  alone  of  more  effi- 
cient internal  management  in  their  own  businesses, 
but  of  closer  buying  as  well.  The  most  obvious  way 
to  accomplish  the  latter  was  to  get  close  to  the  manu- 
facturer, secure  the  same  quantity  discount  on  pur- 
chases as  the  regular  jobber  could  secure,  maintain  a 
central  warehouse,  and  in  this  way  eliminate  a  part  of 
the  jobber's  selling  expenses  as  well  as  appropriate 
all  his  profits. 

Various  minor  circumstances  added  fuel  to  the 
flames.  Retailers  saw  the  chain  stores  buj^ing  direct 
from  manufacturers  at  quantity  prices  or  else  from 
"friendly"  jobbers  who  split  commissions  on  large 
orders.  The  practice  of  many  jobbing  houses  in  al- 
lowing some  latitude  to  salesmen  in  making  prices 
has  frequently  led  to  discrimination.  The  salesmen 
got  highest  prices  from  their  friends  and  lowest  prices 

134 


COOPERATIVE  JOBBING  135 

from  those  who  had  the  time  and  inchnation  to  haggle. 
All  of  this  forced  many  retailers  to  the  conclusion  that 
their  salvation  lay  in  closer  buying  and  that  the  only 
way  to  buy  closely  was  to  band  together  and  buy  di- 
rect of  the  manufacturers. 

2.  Behind  cooperative  jobbing. — The  idea  back  of 
the  cooperative  buying  movement  is  to  substitute  the 
"pull"  of  the  retailer  thru  his  cooperative  efforts  for 
the  "push"  of  the  manufacturer  or  jobber.  In  this 
way  the  retailer  appropriates  the  profit  resulting  to 
the  jobber  for  obtaining  his  business,  and  equally  the 
expense  incurred  by  other  wholesalers  who  strive  for 
his  business  without  obtaining  it.  The  members  base 
their  activities  on  the  assumption  that  the  organization 
is  more  economical  than  an  ordinary  jobbing  concern. 
The  usual  profits  of  the  jobber  are  distributed  as  divi- 
dends among  the  stockholders  in  the  cooperative  con- 
cern, and  among  the  buyers  in  the  form  of  rebates 
or  of  lower  prices  on  goods  bought. 

3.  Buying  syndicates. — The  buying  syndicate  is  a 
loose  organization  that  does  not  attempt  to  supply  its 
members  with  all  their  goods.  The  Nebraska  Feder- 
ation of  Retailers  is  an  example.  The  plan  is  to  buy 
certain  staples  in  carload  lots,  to  be  sold  for  cash  to 
the  members  at  cost  price,  plus  a  small  charge  for  ad- 
ministration. Various  modifications  of  the  buying 
syndicate,  or  exchange,  are  to  be  found.  One  such 
organization  in  Chicago  maintains  a  large  exhibition 
hall  in  which  manufacturers  display  their  products. 
Retailers  come  to  this  central  office  and  buy  thru  an 


136  WHOLESALE  MERCHANDISING 

expert  buying  staff  maintained  by  the  organization. 
The  organization  charges  each  retailer  who  belongs 
to  the  exchange  an  annual  fee  of  five  dollars.  Since 
the  retailers  themselves  have  no  other  financial  inter- 
est in  it,  the  organization  cannot  be  considered  truly 
cooperative. 

4.  Cooperative  manufacturing. — Still  another  type 
of  cooperative  organization  is  found  in  such  associ- 
ations as  the  United  Drug  Company,  which  is  owned 
by  independent  retailers  thru  stock  subscription.  The 
membership  carries  with  it  an  exclusive  agency  for 
the  Rexall  line,  but  it  also  includes  considerable  con- 
trol of  the  pohcies  and  operation  of  the  business,  as 
well  as  of  the  distribution  of  the  profits.  Further- 
more, the  United  Drug  Company  handles  only  goods 
of  its  own  manufacture  or  private  brands  made  under 
contract.  This  company  seems  to  the  writer  to  be  a 
cooperative  manufacturing  concern  working  thru  a 
cooperative  chain  which  acts  as  an  exclusive  agency 
rather  than  a  buying  syndicate. 

The  United  Jewelers'  Association  is  of  the  same 
sort,  while  the  American  Druggists'  SjTidicate  differs 
in  that  a  general  jobbing  business  is  added.  Affil- 
iated with  such  concerns  are  frequently  several  others 
of  similar  character,  such  as  the  United  Merchants' 
Insurance  Company,  allied  with  the  United  Drug 
Company,  which  does  the  insurance  business  of  Rexall 
stores  on  a  cooperative  basis. 

5.  True  cooperative  jobbing. — Cooperative  job- 
bing, the  third  type  of  cooperative  effort  to  replace 


COOPERATIVE  JOBBING  137 

the  jobber,  exists  when  retailers  organize  a  stock  com- 
pany, maintain  a  warehouse,  and  carry  out  all  the 
functions  of  the  jobber,  with  such  limitations  and 
savings  as  may  be  maintained  thru  organized  coopera- 
tion. Such  concerns  are  the  Girard  Grocery  Com- 
pany, of  Philadelphia,  and  the  Philadelphia  Whole- 
sale Drug  Store. 

6.  General  plan  of  oiyanization. — While  no  two  of 
these  cooperative  houses  work  in  exactly  the  same  way, 
their  methods  are  fundamentally  the  same.  The  or- 
ganization corresponds  to  that  of  a  stock  company. 
Great  care  must  be  exercised  in  the  selection  of  mem- 
bers. The  organizers,  in  their  enthusiasm  for  the 
movement,  may  persuade  many  retailers  to  join,  but 
the  problem  is  to  get  those  who  will  stay  and  make 
desirable  working  associates.  Therefore,  only  those 
should  be  invited  to  join  who  are  in  thoro  sjanpathy 
with  the  movement,  and  who  are  determined  to  see  it 
thru.  ^Members  must  be  financially  reliable  and  able 
to  pay  cash  for  goods.  They  must  be  willing  to  dis- 
pense with  some  of  the  services  of  the  jobbers,  partic- 
ularly in  the  way  of  extensions  of  credit  and  service 
made  possible  thru  the  corporation  of  the  jobber's 
salesmen.  They  must  be  conversant  with  the  advan- 
tages and  disadvantages  of  the  cooperative  method, 
and  fully  convinced  that  for  them  the  advantages  out- 
weigh the  disadvantages. 

7.  Method  of  stock  subscription. — Various  types  of 
stock  subscription  are  found.  One  organization  re- 
quires each  member  to  purchase  five  shares  of  stock  at 

XIX~11 


138  WHOLESALE  MERCHANDISING 

one  hundred  dollars  each.  In  case  the  member  does 
not  pay  promptly  for  any  goods  bought,  his  stock  may 
be  sold  and  his  membership  canceled.  After  this 
initial  purchase,  which  gives  the  membership  privilege, 
the  further  purchase  of  stock  is  entirely  at  the  option 
of  the  member.  Generally  all  earnings  above  a  mod- 
erate return  on  the  stock  subscriptions  go  to  the  mem- 
bers in  the  form  of  rebates  on  their  purchases  or  in 
special  prices  on  merchandise. 

Slightly  different  is  the  method  in  one  cooperative 
drug  jobbing  concern,  as  outlined  in  its  constitution 
and  by-laws : 

To  become  a  member,  it  is  necessary  to  pay  a  membership 
fee  of  $25,  for  Avhich  a  certificate  of  membership  is  issued, 
which  is  transferable  only  by  consent  of  the  company. 

To  enjoy  the  purchasing  privileges  of  this  company,  it  is 
further  necessary  for  each  member  to  carry  a  cash  deposit 
with  the  company,  which  cash  deposit  shall  be  the  equal  of 
the  average  weekly  purchases  of  said  member,  for  which  the 
company  will  issue  a  certificate  of  deposit. 

It  is  understood  that  the  cash  deposit  cannot  be  used  to 
pay  an  account  except  upon  the  surrender  of  the  certificate 
of  deposit,  properly  indorsed,  and  that  thereupon  the  buy- 
ing privilege  of  said  member  is  revoked  until  the  cash  de- 
posit shall  have  been  restored,  whereupon  another  certificate 
of  deposit  shall  be  issued. 

In  several  concerns  it  is  not  felt  necessary  to  have 
the  members  become  stockholders  in  order  to  ffuaran- 
tee  their  loyalty.  In  the  Cincinnati  Economy  Drug 
Company  only  one-third  of  the  members  are  stock- 
holders, yet  the  company  gets  as  strong  support  from 


COOPERATIVE  JOBBING  139 

non-stockholders  as  from  stockholders.  The  stock- 
holder simply  gets  a  little  extra  profit  from  stock 
ownership ;  both  get  the  same  buying  advantage. 

8.  Voting  power. — Any  cooperative  institution  is 
peculiarly  susceptible  to  mismanagement.  As  a  rule, 
in  the  cooperative  jobbing  organization  only  one  vote 
is  allowed  each  stockholder,  irrespective  of  the  amount 
of  stock  he  o\^tis.  Under  these  circumstances  the 
small  retailer  is  inclined  to  feel  that  he  has  just  as 
much  authority  in  the  matter  of  management  as  the 
larger  retailer;  and  theoretically  he  should  have. 
This  ruling  generally  causes  troubk  because  the  small 
retailer  usually  is  not  so  well  informed  or  so  good  an 
executive  as  the  man  with  large  business  interests. 
Cases  even  arise  in  which  it  would  seem  that  the 
smaller  retailer  would  like  to  penalize  his  larger  asso- 
ciates for  these  larger  interests.  The  experience  of 
one  well-known  cooperative  jobbing  concern  in  the 
West  is  interesting. 

When  we  started  this  institution,  we  allowed  one  vote  only 
to  each  stockholder,  but  on  account  of  the  interference  of 
the  small  stockliolder,  and  on  account  of  the  fact  that  men 
with  capital  would  not  invest,  except  in  a  very  small  way,  we 
changed  our  by-laws  so  as  to  entitle  each  stockholder  to  one 
vote  for  each  share  of  stock.  We  can  and  do  vote  cumula- 
tively. 

9.  Dividends. — The  savings  after  paying  any  re- 
bates on  sales,  and  after  setting  aside  a  part  for  re- 
.serves  form  the  dividends.  One  concern,  for  exam- 
ple, pays  5  per  cent  on  its  common  stock  and  10 


140  WHOLESALE  MERCHANDISING 

per  cent  on  its  preferred  stock  regularly.  The  divi- 
dends on  the  preferred  stock  are  cash  discounts;  re- 
bates from  manufacturers,  and  any  profit  which  may 
be  made  by  advancing  prices  on  the  rising  market, 
are  taken  as  organization  profits  and  therefore  are 
used  directly  for  distribution  as  dividends  to  stock- 
holders, rather  than  as  bonuses  on  purchases  or  as  a 
basis  for  lowering  prices. 

10.  Manager  and  directors. — The  cooperative  or- 
ganization is  peculiarly  a  "one-man"  institution.  As 
one  authority  in  the  hardware  field  has  said : 

The  success  or  failure  of  the  formal  cooperative  jobbing 
organization  depends  entirely  on  the  man  at  its  head.  Com- 
paratively few  of  these  organizations  that  spring  up,  ac- 
tually grow ;  they  invariably  "run  on  the  rocks"  because  of 
petty  internal  jealousies  among  the  stockholders,  as  well  as 
suspicion  among  the  stockholders,  or  graft,  discrimination, 
favoritism,  etc.,  not  only  on  the  part  of  the  internal  manage- 
ment itself,  but  of  the  employes.  It  is  evident  that  impar- 
tial treatment  by  the  man  at  the  head  of  the  organization  to- 
ward all  its  members  is  an  absolute  necessity. 

11.  Buying  advantage. — The  merchandise  man- 
ager of  the  cooperative  jobbing  organization  has  a  big 
advantage  over  the  merchandise  manager  of  the  reg- 
ular jobbing  house.  He  has  a  regular  and  constant 
market  practically  assured.  He  knows  this  market 
thoroly.  He  can  gauge  closely  the  consumption  ca- 
pacity of  both  staple  and  seasonal  goods  thru  the  re- 
quirement lists  supplied  by  members.  Dealers  send 
in  their  orders  for  seasonal  goods  considerably  ahead 
of  time  and  thus  give  the  cooperative  concern  exact 


COOPERATIVE  JOBBING  141 

figures  on  which  to  place  orders  with  manufacturers. 
As  a  result,  very  little  stock  is  carried  over  at  the  end 
of  the  season  and  there  is  little  depreciation.  The 
ordinary  jobber  can  at  best  only  estimate  what  the 
orders  for  seasonal  goods  are  to  be. 

12.  Buying  arrangements. — The  big  problem  is  to 
establish  satisfactory  buying  arrangements  with 
manufacturers.  Other  jobbers  try  to  prevent  manu- 
facturers from  selling  to  associations,  but  the  chief 
difficulty  is  the  uncertainty  of  the  future  of  the  new 
organization.  The  mortality  among  cooperative  con- 
cerns, both  wholesale  and  retail,  is  so  high  that  manu- 
facturers are  naturally  skeptical.  After  the  new 
organization  establishes  a  good  financial  rating,  few 
manufacturers  will  refuse  to  sell  to  it.  In  return,  the 
manufacturer  gets  cash  prices  for  his  goods  and  an 
outlet  which  is  not  complicated  as  is  usually  the  case 
with  jobbers  who  engage  in  manufacturing  and  who 
have  private  brands  of  their  own. 

13.  Selection  of  merchandise. — Xo  attempt  is  made 
by  the  cooperative  jobbing  association  to  influence  the 
retailers'  selection  of  merchandise.  Most  cooperative 
concerns  limit  themselves  to  staple  merchandise, 
generally  the  kinds  known  as  nationally  advertised 
brands.  This  is  true  es2)ecially  of  the  drug  and  gro- 
cery lines,  in  which  such  brands  occupy  a  big  place. 
The  association  gathers  lists  of  stocks  carried  by  re- 
tailers, and  then  arranges  to  obtain  each  article  from 
the  manufacturers  in  jobbing  quantities  and  at  job- 
bing prices.    In  some  cases,  manufacturers  have  tried 


142  WHOLESALE  MERCHANDISING 

to  charge  the  cooperative  jobbing  concerns  five  per 
cent  more  than  the}^  charge  regular  jobbers.  The  co- 
operative concerns  have  made  a  point  of  taking  all 
cash  discounts,  and  this  fact,  together  with  possible 
competition  from  more  encouraging  manufacturers, 
has  forced  the  skeptical  sellers  into  line.  The  real 
problem  of  the  cooperative  jobbing  concern  is  to  keep 
in  close  touch  with  the  market  and  the  needs  of  the 
members.  The  concern  must  be  able  to  supply- 
promptly  the  goods  the  retailers  want,  when  they  want 
them,  and  to  act  as  distributors  of  information  on  new 
merchandise  so  that  the  retailer  may  order  by  mail 
and  receive  satisfactory  service. 

Few  manufacturers'  goods  are  taken  on  a  consign- 
ment basis.  Cooperative  organizations,  for  the  most 
part,  handle  only  commodities  for  which  a  consumer 
demand  has  already  been  created.  Very  few  associa- 
tions run  private  brands. 

14.  Stockheeping. — A  cooperative  concern  must  be 
so  well  managed  that  stocks  seldom  run  short ;  other- 
wise the  member  for  whom  "shorts"  often  occur  will 
become  disgusted  and  resign.  A  permanent  inven- 
tory is  maintained  and  this  is  checked  monthly  or,  at 
the  most,  semi-annually  to  show  any  discrepancies. 
The  manager  can  tell  at  a  glance  the  exact  state  of 
the  stock  in  any  line,  together  with  the  maximum  and 
minimum  set  for  it  and  the  sales  for  the  day,  week  or 
season.  A  complete  physical  inventory  is  also  taken 
semi-annually. 

15.  Selling. — Practically    no    advertising   to    con- 


COOPERATIVE  JOBBING  143 

sumers  is  carried  on  by  cooperative  jobbing  houses, 
since  they  do  not,  as  a  rule,  undertake  to  put  new 
manufactured  goods  upon  the  market.  In  some 
cases,  a  few  salesmen  are  maintained.  This  expense 
of  salesmen  is  reduced  to  a  minimum  in  comparison 
with  that  of  the  elaborate  selling  organization  main- 
tained by  some  of  the  larger  jobbers.  Such  salesmen 
as  are  employed  are  partly  order-takers,  partly  busi- 
ness counselors.  But  for  the  most  part  this  expense 
of  keeping  salesmen  is  eliminated  by  having  the  retail- 
ers order  thru  the  mail,  unless  perchance  it  is  possible 
for  the  retailer  to  call  at  the  headquarters  of  the  co- 
operative concern  and  make  his  selection  in  person. 
Booklets,  catalogs,  pamphlets  and  lists  of  price  quota- 
tions are  sent  to  the  members  periodically,  and  special 
lists  whenever  new  arrangements  are  made  with  manu- 
facturers or  when  special  purchases  are  offered. 

16.  Returned  goods  and  exchanges. — No  allow- 
ances are  made  to  members  in  connection  with  re- 
turned goods  except  for  defects  in  manufacture.  In 
some  cooperative  organizations  there  is  an  exchange 
arrangement.  When  one  retailer  finds  himself  over- 
stocked, he  communicates  thru  the  central  organiza- 
tion with  other  retailers  and,  if  possible,  unloads  his 
surplus. 

17.  Prices. — The  system  of  pricing  varies.  In 
some  concerns  the  prices  are  the  same  as  on  the  manu- 
facturers' lists  and  the  savings  come  to  the  retailer  in 
the  way  of  rebates  at  the  end  of  the  fiscal  year,  as  well 
as  in  dividends.     In  others,  prices  are  reduced  to  the 


144  WHOLESALE  MERCHANDISING 

lowest  possible  figure.  Any  surplus  savings  at  the 
end  of  the  fiscal  year  are  distributed  in  dividends.  In 
concerns  which  allow  non-members  to  purchase,  cur- 
rent market  prices  are  charged  and  no  later  benefits 
in  the  way  of  dividends  or  rebates  accrue  to  them. 

18.  Credits. — Terms  of  payment  differ  in  detail  but 
all  sales  are  practically  on  a  cash  basis.  Some  require 
payment  weekly ;  some  on  the  first  and  the  fifteenth  of 
each  month;  some  on  the  tenth  of  the  month  for  the 
previous  month's  purchases;  some  allow  one  or  two 
per  cent  cash  discount.  Losses  from  bad  debts  are 
negligible.  One  concern  says  these  losses  have  not 
amounted  to  more  than  one-fiftieth  of  one  per  cent 
for  any  year  since  the  organization  began  business. 

19.  Deliveries. — Wherever  possible  drop  shipments 
— that  is,  direct  shipments  from  the  manufacturer  to 
the  retailer — are  required.  When  shipment  is  made 
from  the  cooperative  associations'  warerooms,  the  re- 
tailers have  the  choice  of  sending  their  own  teams  for 
them  or  of  having  the  goods  delivered  by  the  cooper- 
ative company  and  the  cost  charged  on  the  invoice. 
This  emphasis  on  delivery  expense  encourages  the 
member  to  group  his  purchases  and  avoid  small  ship- 
ments. 

REVIEW 

What  economic  conditions  gave  rise  to  group-purchasing? 

Do  you  think  that  cooperative  jobbing  groups  can  do  away 
with  the  function  of  the  jobber?  Would  such  a  result  be  de- 
sirable ? 

How  does  the  buying  syndicate  differ  from  true  cooperative 
organizations  ? 


COOPERATIVE  JOBBING  145 

How  is  the  voting  power  in  cooperative  jobbing  organizations 
usually  determined? 

Whv  have  cooperative  organizations  not  been  notably  success- 
ful? 

What  advantages  has  the  cooperative  jobbing  organization 
which  the  jobber  does  not  have?     What  disadvantages? 


CHAPTER  XI 

SELLING  AGENT  AND  FACTOR 

1.  Necessity  for  many  distributive  agents. — The 
problems  of  distribution  are  so  intricate  and  the  meth- 
ods of  meeting  them  so  varied  that  there  is  plenty  of 
room  in  the  field  for  other  wholesale  middlemen  be- 
sides the  jobber.  Some  have  been  in  the  business 
field  for  many  years,  while  others  have  begun  opera- 
tions only  recentlj^  Their  existence  is  justified  by 
the  economic  functions  which  they  perform. 

At  one  time  the  manufacturer's  selling  agent,  the 
mill  agent,  the  factor,  the  commission  merchant  and 
the  broker  had  definite  lines  along  which  they  worked, 
and  to  which  they  held  rather  closely.  However,  as 
many  merchants  in  each  class  reached  out  for  more 
business,  for  more  power  or  for  an  opportunity  to  in- 
vest surplus  funds,  they  began  adding  to  their  func- 
tions. Their  original  titles  are  still  in  use,  with  the 
result  that  there  is  much  confusion  in  terms.  For 
this  reason  it  is  impossible  to  lay  down  any  hard  and 
fast  definitions  which  will  apply  in  all  cases.  For  ex- 
ample, many  distributors  who  are  called  merchandise 
brokers,  operate  warehouses  or  lease  storage  space  for 
keeping  stock.  Many  take  exclusive  territorial  sell- 
ing rights,  or  handle  a  manufacturer's  entire  output. 

146 


SELLING  AGENT  AND  FACTOR  147 

In  some  cases  goods  are  bought  outright  for  resale. 
The  broker  may  do  any  or  all  of  these  thmgs  without 
interfering  with  his  ordinary  brokerage  business.  He 
still  calls  himself  a  broker  when,  as  a  matter  of  fact, 
he  has  performed  the  functions  which  were  originally 
attributed  to  at  least  three  other  types  of  middlemen. 

Furthermore,  the  jobbing  business  is  often  com- 
bined with  that  of  one  or  more  of  these  other  middle- 
men. So  a  man  might  call  himself  by  any  one  of  the 
titles,  and  that  title  might  apply  to  one  particular 
branch  of  his  business,  yet  not  cover  the  whole  of  it. 

For  the  purposes  of  this  chapter,  the  primary  inter- 
pretation is  given  in  every  case,  and  the  primary 
functions  of  each  middleman  are  discussed  separately. 
It  will  be  found  that  the  classification  here  used,  to- 
gether with  that  for  the  jobber,  covers  practically 
every  form  of  the  wholesale  middleman's  business. 

2.  Manufacturer's  selling  agent. — In  the  modern 
scheme  of  wholesale  distribution,  the  manufacturer's 
selling  agent  has  gained  a  position  of  considerable 
importance  because  of  the  volume  of  business  which 
he  is  able  to  control.  In  some  cases,  the  selling  agent 
activities  are  limited  to  medium  sized  manufacturers 
who  are  not  in  a  position  to  organize  and  operate  their 
own  sales  organizations,  or  to  the  man  just  organizing 
a  manufacturing  business  w4io  does  not  feel  capable 
of  marketing  his  own  product  to  the  best  advantage. 
His  easiest  course  is  to  turn  to  one  of  the  manufac- 
turers' selling  agencies. 

Various  instances  can  be  cited,  however,  in  which 


14.8  WHOLESALE  MERCHANDISING 

large  and  well-established  concerns  depend  on  a  sell- 
ing agency  to  market  their  goods.  This  is  true,  for 
example,  in  such  lines  as  hosiery,  underwear  and 
gloves,  in  which  there  are  few  large  manufacturing 
concerns  which  operate  their  own  sales  organization. 

3.  Compensation  of  selling  agents. — Usually  a 
commission  is  allowed  the  selling  agent  on  all  goods 
he  sells,  with  an  extra  commission  when  he  guarantees 
the  accounts.  Other  forms  of  payment,  including 
monthly  or  yearly  salaries,  or  percentages  of  profits, 
are  sometimes  used.  Careful  consideration  must  be 
given  to  the  question  of  special  selling  expenses  when 
the  agreement  with  the  agent  is  made  out,  for  fre- 
quently trouble  arises  in  this  connection. 

4.  Pricing, — The  principal  considerations  in  the 
selling  of  the  various  classes  of  goods  whose  main 
characteristics  are  practically  uniform  are  price  and 
delivery.  Usually  the  agent  is  furnished  with  a  defi- 
nite price  scale  so  that  the  only  decision  he  need  make 
concerns  the  matter  of  delivery.  Obviously,  in  such 
cases,  the  advantage  over  competitors  lies  with  the 
agent  who  can  give  quick  deliveries,  and  in  some  cases, 
with  the  one  who  can  give  the  cheapest  deliveries. 

5.  Delivery  and  other  expenses. — In  any  case  de- 
livery charges  are  a  part  of  the  net  cost  to  the  buyer. 
So  prices  must  be  made  accordingly  if  one  is  to  get  the 
business.  Likewise,  there  must  be  corresponding 
compensation  to  the  agent  if  he  is  to  pay  delivery 
charges,  since  these  are  selling  expenses.  In  some 
lines  allowance  must  be  made  for  advertising  expense, 


SELLING  AGENT  AND  FACTOR      149 

or  for  the  expense  of  specialty  salesmen,  or  dealer  serv- 
ice and  the  like.  The  manufactui-er  usually  pays  all 
such  expenses. 

0.  Sales  agent's  contract  and  authority. — The 
actual  relationship  of  manufacturer  and  selling  agent 
is  not,  however,  a  development  of  modern  times.  It 
is  purely  a  case  of  agency,  the  details  of  which  have 
been  made  to  conform  with  modern  business  condi- 
tions. The  law  provides  that  the  selling  agent  shall 
have  power  to  sell,  that  he  may  grant  terms  of  credit, 
and  that,  ordinarily,  he  may  warrant  the  quality  of 
goods.  In  addition,  he  has  all  the  special  rights  and 
obligations  set  forth  in  his  contract,  together  with 
those  that  may  be  implied  from  the  general  customs 
of  the  business. 

The  length  of  the  contract  is  determined  by  the  fact 
that  there  is  a  point  in  the  development  of  the  sales 
volume  beyond  which  it  is  more  economical  for  the 
])roducer  to  market  his  own  product  than  to  have  it 
done  thru  the  sales  agency. 

7.  Two  classes  of  selling  agents. — There  are  two 
distinct  classes  of  sales  agents.  The  first  class  con- 
sists of  those  who  maintain  their  oa\ti  warehouses, 
shipping  accommodations  and  administrative  depart- 
ments. The  warehousing  sales  agent  can-ies  a  com- 
plete stock  of  the  manufacturer's  goods  from  which 
he  makes  shipments  as  orders  are  received  thru  his 
representatives.  He  also  bills  the  goods  and,  in  some 
instances,  undertakes  the  collection  of  accounts  and 
insures  payment.     In  other  words,  he  performs  all 


150  WHOLESALE  MERCHANDISING 

the  functions  of  a  trader,  thus  relieving  the  manu- 
facturer of  further  concern  after  the  goods  are  com- 
pleted and  consigned  to  the  agent.  This  arrangement 
is  particularly  well  adapted  to  certain  commodities, 
such  as  groceries  and  dry  goods,  in  which  immediate 
shipment  to  dealers  is  essential. 

The  sales  agent  who  does  not  maintain  a  warehouse 
sells  only  by  sample.  He  does  not  make  shipments 
to  customers  nor  is  he  directly  concerned  with  the 
billing  or  collection  of  accounts.  His  agency  is  lim- 
ited to  the  primary  function  of  selling;  beyond  that 
he  has  neither  rights  nor  obligations.  In  most  cases 
the  sales  agent  accepts  orders  subject  to  the  approval 
of  his  principal.  The  territory  of  the  warehousing 
agent  may  extend  over  the  entire  country,  or  even 
thruout  the  world.  The  agent  who  has  no  warehous- 
ing facilities  is  frequently  limited  to  one  country,  city 
or  town. 

8.  Services  rendered  hy  selling  agent. — The  selling 
agent,  to  be  successful,  must  be  in  a  position  to  give 
efficient  service.  This  is  his  great  function  which  out- 
weighs all  other  activities  he  may  assume.  Hence, 
he  exerts  every  effort  to  maintain  it,  as  the  penalty  for 
his  failure  is  the  termination  of  the  agency  bj'^  the 
manufacturer.  What  the  sei-vice  is,  is  governed  by 
the  business  customs  for  different  lines  of  goods. 
Sometimes  it  is  necessary  to  maintain  show  rooms  in 
each  important  city  within  the  agent's  territory.  The 
Coast  Products  Company,  which  represents  various 
manufacturers  from  the   Pacific  coast,   in  Missouri 


SELLING  AGENT  AND  FACTOR  151 

and  neighboring  states,  maintains  in  addition  to  the 
headquarters  in  St.  Louis,  branch  warehouses  in  Des 
Moines,  Omaha,  Kansas  City,  Indianapohs,  Minne- 
apohs  and  Cincinnati,  for  only  in  that  way  can  they 
render  satisfactory  service  to  chents,  in  competition 
with  local  jobbing  houses. 

The  amount  and  type  of  service  varies  widely. 
One  selling  agent  in  the  hardware  trade  represents 
forty  manufacturers,  yet  no  two  of  them  receive  iden- 
tical service.  For  some,  he  is  a  warehousing  sales 
agent,  while  for  others,  he  stocks  no  goods.  Some- 
times he  handles  a  line  in  only  a  part  of  his  territory. 
Sometimes  he  collects  accounts  and  in  other  cases  he 
guarantees  them.  He  prides  himself  on  being  able 
to  serve  any  manufacturer  in  the  way  the  manufac- 
turer wishes  to  be  served. 

9.  Selling  agent's  organization. — The  organization 
of  the  sales  agent  varies  from  the  one-man-and-a-desk 
type  to  the  highly  developed  enterprise  with  its 
warehouses,  selling  departments,  administrative  offices 
and  branch  show  rooms  located  at  trade  centers. 
The  former  needs  no  sj)ecial  mention  in  this  connec- 
tion except  to  suggest  that,  altho  his  organization  is 
small,  he  nevertheless  performs  a  valuable  service  in 
disposing  of  the  product  of  the  manufacturer.  Such 
an  agent  is  better  able  to  offer  this  service  than  his 
largest  competitor,  especially  to  the  smaller  manufac- 
turer, because  of  his  close  connection  with  the  market 
and  with  his  clients  and  because  of  his  low  overhead 
expense. 


152  WHOLESALE  MERCHANDISING 

In  the  larger  agencies,  it  is  quite  natural  to  expect 
that  the  personnel  will  be  of  a  higher  grade,  that  there 
will  be  greater  specialization  and,  on  the  whole,  greater 
efficiency  than  it  is  possible  for  the  small  manufac- 
turer to  maintain.  The  large  volume  of  business  in- 
sures low  unit  costs  for  any  one  of  the  manufacturer's 
accounts  represented. 

Whether  or  not  the  selling  agent  will  survive  the 
agitation  against  middlemen  as  a  whole  is  a  matter  of 
some  concern.  It  seems  safe  to  assume  that,  inas- 
much as  he  offers  a  valuable  economic  service,  espe- 
cially for  small  manufacturers,  there  is  no  good  rea- 
son to  expect  a  curtailment  of  his  activities. 

10.  3Iill  agent. — The  mill  or  factory  agent  has 
come  to  be  known  as  an  agent  altho,  in  reality,  his 
sendees  are  entirely  those  of  a  principal.  The  main 
point  of  distinction  between  him  and  other  wholesale 
distributors  is  that  he  contracts  to  purchase  outright 
the  entire  output  of  a  mill  or  mills.  ^liddlemen,  such 
as  the  jobber,  usually  take  over  only  sufficient  stock  to 
meet  the  needs  of  their  trade.  Commission  mer- 
chants and  brokers  sometimes  handle  the  entire  out- 
put of  certain  mills  or  factories,  but  neither  of  then; 
buys  outright. 

Since  the  work  of  the  mill  or  factory  agent  is,  in 
effect,  to  act  as  the  selling  organization  of  the  manu- 
facturer, it  naturally  follows  that  he  will  be  a  sales 
specialist.  Thus,  his  main  function  is  to  create  and 
to  sustain  a  demand  for  the  goods.  In  most  cases  he 
advertises  them  at  his  own  expense,  and  in  many  cases 


SELLING  AGENT  AND  FACTOR  153 

owns  the  trade-mark  which  they  bear.  As  in  the  case 
of  the  manufacturer's  seUing  agent,  many  points  sub- 
ject to  discussion  are  settled  in  the  contract  between 
the  parties.  The  nature  of  each  contract  is  influenced 
by  the  particular  conditions  surrounding  the  case. 
Seldom  are  two  such  contracts  ahke. 

From  the  viewpoint  of  the  producer,  the  greatest 
advantage  in  this  scheme  of  marketing  is,  that  he  has 
a  convenient  outlet  for  everything  he  manufactures 
and  is  not  confronted  with  selling  problems.  On  the 
other  hand,  he  is  often  at  a  disadvantage  thru  inability 
to  adjust  prices  readily  so  as  to  get  the  full  benefit 
of  favorable  market  fluctuations. 

11.  Factor  and  his  function. — Until  comparatively 
recently  no  adequate  means  to  finance  a  manufac- 
turing business  have  been  available  to  one  whose  cap- 
ital was  limited  and  who  did  not  have  financial  back- 
ing. Ordinary  banks,  in  most  cases,  do  not  care  to 
grant  accommodations  unless  the  credit  instrument  is 
secured  by  specific  liens  on  tangible  property.  Even 
tho  a  business  may  be  already  earning  substantial 
profits  and  may  have  a  bright  future,  neither  national 
nor  state  banks  are  in  a  position  to  grant  loans  of  cap- 
ital to  carry  on  the  desired  business,  since  they  are  not 
allowed  to  invest  in  such  loans  to  any  great  extent. 
In  order  to  meet  the  requirements  which  the  banks  set, 
and  to  offer  the  kind  of  service  demanded  by  growing 
enterprises,  the  factor  established  himself. 

At  law,  there  is  little  difference  between  the  selling 
agent  and  the  factor  yet  in  practice  the  distinction 

XIX— 12 


154.  WHOLESALE  MERCHANDISING 

is  sharp.  The  real  function  of  the  selhng  agent  is  to 
supply  a  sales  organization,  while  that  of  the  factor  is 
to  supply  the  capital  necessary  to  carry  on  his  clients' 
operations.  Of  necessity,  the  relation  between  factor 
and  cHent  is  intimate  and  demands  the  factor's  close 
supervision.  The  client  is  variously  known  as  a  de- 
partment, account  or  annex  of  the  factor — depending 
largely  on  the  class  of  business  in  which  he  is  engaged. 
For  convenience  here,  the  term  client  will  be  used 
thruout. 

12.  Form  of  agreement. — There  is  no  standard 
form  of  agreement  used  by  all  factors.  Terms  are 
arranged  to  meet  circumstances  and  are  subject  to 
bargaining  by  the  parties.  Usually  the  factor  agrees 
to  a  standing  loan,  for  which  he  charges  interest,  the 
security  being  the  client's  tangible  assets.  He  also 
agrees  to  make  immediate  cash  advances  on  all  sales 
made  by  the  client,  subject  to  the  factor's  approval 
for  credit  responsibility.  The  amount  varies  from  60 
to  80  per  cent  of  the  amount  of  the  sale.  The  goods 
are  billed  in  the  name  of  the  factor  who  is  thus  able 
to  maintain  control  over  the  accounts  and  to  make 
collections.  When  the  customer's  remittance  is  re- 
ceived, the  factor  deducts  the  amount  of  the  advance 
made  on  that  particular  bill  and  a  commission  for  use 
of  money  and  for  service  rendered.  The  balance  is 
then  turned  over  to  the  client. 

13.  Method  of  operation. — The  following  is  an 
illusti'ation  of  the  relationship  between  factor  and 
client.     A  is  factor  for  B,  a  manufacturer.     Their 


SELLING  AGENT  AND  FACTOR  155 

contract  provides  that  on  the  sale  of  goods  to  a  cus- 
tomer whose  credit  standing  has  been  proved,  A  will 
advance  70  per  cent  of  the  invoice  price;  the  remain- 
der, after  deducting  3  per  cent  for  services  and 
interest  on  money,  is  to  be  remitted  on  receipt  of  set- 
tlement from  the  customer.  B  makes  a  shipment  of 
goods,  valued  at  $1,000,  to  a  customer  in  Philadelphia, 
on  terms  of  net  cash,  60  days — credit  and  terms  hav- 
ing been  approved  by  A.  On  receipt  of  notice  of 
shipment,  A  advances  to  B,  cash  in  the  amount  of 
$700.  When  the  bill  becomes  due,  the  customer  re- 
mits $1,000  to  A,  who  deducts  from  this  the  $700  ad- 
vanced, plus  the  $30  which  represents  his  3  per  cent 
compensation  and  forwards  the  remaining  $270  to 
B,  thus  closing  the  transaction. 

It  is  the  general  purpose  of  the  factor  to  relieve  his 
clients  of  those  activities  outside  the  manufacture  and 
marketing  of  the  product.  In  some  instances,  the 
factor  supplies  a  sales  office  situated  in  a  desirable 
trade  center.  With  it  is  provided  heat,  light  and  full 
insurance  protection.  Then,  too,  he  may  agree  to  at- 
tend to  all  the  details  of  collecting  accounts  and  may 
guarantee  his  client  against  any  losses  from  bad  debts. 
In  practically  every  case,  the  billing  of  goods  is  at- 
tended to  by  the  factor,  and  the  book  records  are  kept 
})y  him,  thus  relieving  the  client  of  much  clerical  work. 

14.  Compensation  of  factor. — The  factor's  compen- 
sation varies  with  the  service  rendered.  In  a  case 
in  which  the  service  is  limited  to  an  advance  on  short- 
term  accounts,  the  commission  is  sometimes  less  than 


156  WHOLESALE  MERCHANDISING 

one  per  cent  of  the  sale  price.  It  may  range  as  high 
as  six  per  cent  when  the  factor  takes  the  functions  of 
banker,  landlord,  credit  insurer    and  selling  agency. 

There  is  little  doubt  that  the  factor  is  giving  useful 
service  in  our  present  plan  of  marketing.  This  fact 
is  borne  out  by  the  gi'owing  importance  which  he  has 
assumed  in  recent  years.  However,  the  cHent's  pay- 
ment for  financial  accommodations  include  additional 
profit  to  the  factor,  and  to  that  extent  the  manufac- 
turer is  handicapped  in  his  effort  to  compete  with 
those  in  stronger  financial  circumstances.  With  the 
coming  of  trade  acceptances,  the  need  for  factors  is 
likely  to  diminish  in  lines  in  which  prime  commerical 
paper  would  arise  from  the  transactions  which  could 
be  rediscounted  at  a  Federal  Reserve  bank. 

15.  Factor  s  organization. — Whenever  it  can  be 
conveniently  arranged,  the  factor  endeavors  to  have 
his  clients  in  the  building  in  which  his  own  office  is  lo- 
cated. Sometimes  a  modern  loft  building  is  provided 
in  the  center  of  a  wholesale  district,  and  the  floor 
space  is  apportioned  according  to  the  requirements  of 
the  individual  clients. 

A  very  complete  credit  department  is  conducted  by 
the  factor  so  that  with  close  supervision  it  is  possible 
to  keep  at  a  minimum  losses  from  bad  debts.  A  fac- 
tor sometimes  represents  forty  or  fifty  clients.  If 
each  of  these  were  to  operate  his  own  credit  and  col- 
lection department,  individual  profits  would  be  re- 
duced. The  services  of  credit  information  bureaus, 
collection  agencies,  and  a  force  of  credit  investigators 


SELLING  AGENT  AND  FACTOR  157 

are  essential  to  every  well-conducted  business,  but  the 
operating  cost  of  such  agencies  is  high.  Wlien  this 
is  apportioned  among  forty  or  fifty  concerns,  the  indi- 
vidual expense  is  greatly  reduced.  Moreover,  the 
type  of  credit  and  collection  service  rendered  by  the 
factor  is  probably  higher  than  that  which  the  clients 
would  be  able  to  maintain  individually.  In  fact,  as 
a  rule,  the  factors  in  any  line  have  the  most  complete 
credit  files  of  any  concerns  interested  in  the  line. 

REVIEW 

What  conditions  in  distribution  account  for  the  presence  of 
wholesale  middlemen  other  than  the  jobber? 

What  do  you  understand  to  be  the  function  of  the  sales  agent? 
Of  the  mill  agent?     Of  the  factor? 

What  value  have  these  functions? 

Are  these  types  of  middlemen  likely  to  continuie? 


CHAPTER  XII 

COMMISSION  MERCHANT  AND  BROKER 

1.  Necessity  for  the  commission  merchant. — For 
certain  lines  of  raw  and  intermediate  products  it  is 
not  easy  for  the  producer  to  find  a  market.  Produc- 
ers are  scattered  widely  and  the  market  fluctuates 
from  hour  to  hour.  Consequently,  at  market  centers 
a  type  of  wholesale  middleman  has  developed  who  re- 
ceives consignments  of  goods  and  sells  them  as  an 
agent.  His  knowledge  of  market  prices  and  condi- 
tions enables  him,  as  a  rule,  to  make  better  deals  than 
his  principal  could.  This  man  is  the  commission  mer- 
chant. 

The  lines  in  which  commission  merchants  are  most 
commonly  employed  include  textiles,  grains,  cotton 
and  chemicals.  Formerly,  a  large  percentage  of  farm 
produce  was  handled  in  this  way  but,  during  recent 
years,  commission  men  have  not  been  able  to  get 
enough  farm  produce  on  consignment  to  supply  their 
regular  trade,  and  so  have  been  forced  to  go  out  and 
buy  like  any  regular  jobber. 

Even  in  the  four  lines  just  mentioned,  commission 
merchants  are  coming  to  have  connections  besides 
their  regular  commission  business.  Many  white 
goods  commission  houses  trade  to  some  extent  on  their 
own  account.     In  the  chemical  business  most  of  the 

158 


COMMISSION  MERCHANT  AND  BROKER      159 

foreign  manufacturers  sell  thi-u  American  commission 
houses,  but  many  of  these  same  commission  merchants 
own  their  own  chemical  factories  and  their  own  ware- 
houses. There  are  few  grain  or  textile  commission 
men  who  have  not  some  connection  with  elevators  or 
warehouses. 

2.  Activities  and  compensation  of  commission  mer- 
chants.— Some  commission  merchants  guarantee  col- 
lections on  the  sales,  and  are  known  as  del  credere 
commission  merchants.  In  so  doing  they  are  ap- 
proaching the  function  of  the  factor. 

Unless  there  is  a  special  allowance  for  brokerage, 
the  commission  man  pays  all  selling  costs  out  of  his 
commission,  but  such  expenses  as  storage,  handling 
and  insurance  of  the  goods  while  in  his  possession,  are 
charged  to  the  principal  for  whom  the  commission 
man  acts.  The  commission  merchant  makes  collec- 
tions and  fixes  terms  and  prices  within  the  limits  of  his 
instructions  from  his  principal.  In  all  cases,  he  is 
bound  to  obey  the  instructions  of  his  principal  and, 
like  any  other  agent,  is  liable  for  any  damages  suffered 
from  his  failure  to  do  so.  He  can  depart  from  such 
instructions  only  to  protect  himself  from  loss  on  his 
own  advances  or  disbursements,  or  to  meet  some  other 
emergency. 

3.  Commission  merchants  and  manufacturers' 
agent. — The  commission  merchant  differs  from  the 
manufacturer's  selling  agent  both  in  his  legal  status 
and  in  his  method  of  accounting.  The  manufacturer's 
agent  is  as  his  name  indicates,  a  sales  agent,  working 


160  WHOLESALE  MERCHANDISING 

under  the  direct  orders  of  his  principal.  The  manu- 
facturer dictates  classes  and  terms  of  credit  and  fixes 
prices.  Within  the  scope  of  his  agency,  the  agent 
binds  the  manufacturer  absolutely  but  does  not  as- 
sume any  individual  hability.  Goods  shipped  to  him 
on  consignment  remain  the  property  of  the  manufac- 
turer, who  must  bear  all  risks. 

The  commission  merchant,  on  the  other  hand,  is 
more  independent.  Altho  the  consignments  whicli 
he  receives  are  not  his  property,  nevertheless,  thru 
force  of  custom,  he  provides  for  storage  and  insur- 
ance. He  is  usually  given  wide  range  in  fixing  prices 
and  terms,  and  is  responsible  for  the  payment  of  cus- 
tomers' accounts. 

4.  Commission  merchants  and  factors. — Manufac- 
turers frequently  obtain  advances  from  the  commis- 
sion merchants  thru  sight  drafts  drawn  against  con- 
signments up  to  sixty  or  seventy  per  cent  of  the 
current  market  value.  Commission  merchants  also 
frequently  discount  bills  receivable  for  merchandise 
already  sold  on  time.  In  doing  this,  the  commission 
merchant  becomes  in  effect  a  factor  or  commercial 
banker. 

5.  Rates  of  commission. — Rates  of  commission  vary 
greatly  with  different  lines  of  business  and  even  with 
different  houses  in  the  same  line.  The  points  that 
enter  into  the  calculation  are  the  prestige  of  the  house, 
whether  the  accounts  are  to  be  guaranteed,  whether 
an  allowance  is  to  be  made  for  brokerage,  and  whether 


COMMISSION  MERCHANT  AND  BROKER      161 

the  commission  house  must  assimie  all  storage  and  han- 
dling charges.  Five  per  cent  is  a  common  rate  of 
commission  for  chemicals;  ten  per  cent  is  sometimes 
paid  in  certain  textiles.  When  brokerage  is  allowed, 
the  conmiission  is  two  or  three  per  cent  because,  in 
such  cases,  the  commission  is  practically  clear  profit. 
In  addition  to  this,  an  allowance  is  gi'anted  for  stor- 
ing, insuring  and  otherwise  caring  for  the  goods  from 
the  time  they  are  shipped  until  the  time  they  are  de- 
livered to  the  retailer  or  consumer.  This  allowance 
is  no  small  item,  and  often  equals  the  commission 
charge. 

6.  Commission  contracts. — The  care  which  must  be 
exercised  in  drawing  up  a  contract  with  a  commission 
house  depends  largely  upon  the  reputation  of  the 
house.  A  responsible  concern  offers  to  the  consignor 
many  privileges  and  courtesies  not  specified  in  the 
contract  and,  in  general,  looks  after  his  interests. 
But  it  is  possible  to  do  business  with  safety  even  with 
a  concern  which  has  no  great  reputation,  provided 
every  question  likety  to  arise  is  covered  by  the  agree- 
ment. Not  all  the  items  mentioned  in  the  following 
discussion  are  necessary  in  every  contract,  but  most 
of  them  should  be  included.  The  general  rule  is  to 
provide  in  the  agreement  for  every  question  on  which 
there  is  any  possibility  of  a  difference  of  opinion. 

Transportation — Charges  for  transportation  should 
be  supported  by  the  original  bills  of  lading  of  the 
carrier.     It    is    wise    to    prepay    all    transportation 


162  WHOLESALE  MERCHANDISING 

charges  on  consignment  shipments  and  to  provide  in 
the  contract  that  no  transportation  charges  shall  be 
allowed. 

Storage — The  commission  house  will  probably  in- 
sist that  it  is  to  be  allowed  usual  storage  rates.  When 
possible,  the  consignor  should  stipulate  that  charges 
shall  be  the  exact  cost  to  the  commission  man.  It  is 
well  to  provide  also  for  a  maximum  storage  charge  for 
storage  periods  so  that  goods  may  not  accumulate 
charges  indefinitely. 

Cartage — It  is  fair  to  agree  upon  a  certain  cartage 
rate  of  a  definite  amount  per  package,  or  per  hundred- 
weight, regardless  of  whether  the  commission  house 
operates  its  own  trucks  or  not.  Sometimes  cartage 
charges  are  waived. 

Insurance — Definite  insurance  rates  should  be 
specified.  Commission  merchants  generally  carry  a 
blanket  policy  on  all  consignments.  This  furnishes 
the  basis  for  a  fair  insurance  charge  to  each  client. 

Repacking  and  handling — Wlienever  possible,  the 
manufacturer  should  ship  all  his  goods  in  marketable 
packages,  and  in  such  assortments  as  are  demanded 
by  the  commission  house's  customers.  This  seldom 
involves  additional  expense  on  the  part  of  the  manu- 
facturer, yet  it  permits  him  to  provide  definitely  that 
there  shall  be  no  allowance  for  handling  or  repacking. 
When  shipping  in  packages  ready  for  market  is  im- 
practicable, the  parties  should  reach  an  agreement  as 
to  just  what  repacking  will  be  required  and  what  the 
repacking    will    cost.     Consignors    to    commission 


COMiMISSION  MERCHANT  AND  BROKER      163 

houses  in  foreign  countries  should  give  this  point 
special  attention. 

Selling  price  and  terms — When  there  is  an  estab- 
lished market  price  it  can  be  provided,  if  desired,  that 
all  sales  shall  be  at  market  rates  or  shall  be  not  less 
than  90  per  cent  of  the  market  rates.  It  is  common 
to  provide  that  usual  terms  of  credit  of  the  particular 
line  of  business  will  be  allowed. 

Guarantee  of  accounts — When  operations  are  con- 
ducted on  a  del  credere  commission  basis,  there  should 
be  a  definite  agreement  that  the  commission  house 
will  guarantee  the  prompt  payment  of  all  accounts 
with  its  customers.  Unless  this  exists  the  commis- 
sion house  probably  could  not  be  held  responsible  for 
poor  accounts.  The  agreement  should  include,  also, 
an  understanding  that  the  manufacturer  shall  be  re- 
quired to  make  no  allowance  or  give  any  other  spe- 
cial consideration  for  such  guarantee. 

Amount  of  commission — The  rate  of  commission, 
])ased  upon  the  selling  price,  rather  than  on  the  cost 
price,  should  of  course  be  stated. 

Monthly  settlements — It  is  well  to  specify  that  ir- 
respective of  terms  allowed  to  customers,  all  sales  are 
to  be  accounted  for  and  the  net  proceeds  are  to  be 
payable  by  the  tenth  of  the  month  following.  This 
provision  gives  considerable  protection,  and  is  of  value 
in  accounting  properly  for  consignment  goods. 

Brokerage — Brokerage  is  designed  to  cover  the  cost 
of  selling.  An  allowance  for  brokerage  is  paid  only 
when  the  commission  rate  is  small.     When  possible,  it 


164  WHOLESALE  MERCHANDISING 

should  be  specified  that  the  commission  is  to  cover  all 
selling  expenses,  and  that  no  further  allowance  for 
such  expenses  shall  be  made. 

The  parties  should  agree  upon  a  definite  terri- 
tory in  which  the  commission  merchant  is  to  o]3er- 
ate,  establish  definite  allowances  for  traveling  and 
salesmen's  expenses  for  each  town  or  city  in  that  ter- 
ritory, and  specify  just  what  expenses  are  to  be  in- 
cluded under  the  general  heading  "selling  expenses." 
It  is  well  to  specify  further  that  the  total  brokerage 
allowance,  on  any  sale,  shall  not  exceed  a  stated  per- 
centage of  the  selling  price. 

Regular  audits — The  manufacturer  has  the  right 
to  audit  the  accounts  and  records  of  the  commission 
dealer  at  least  twice  a  year.  Whether  this  provision 
should  be  enforced  or  not  can  then  depend  upon  the 
reliability  of  the  commission  dealer. 

7.  Organization. — The  organization  of  a  commis- 
sion house  usually  consists  of  three  main  divisions 
under  one  general  management — ^banking  and  finance, 
accounting,  and  sales.  The  banking  division  attends 
to  all  investments  and  arranges  loans  and  advances 
to  the  mills.  The  accounting  division  is  subdivided 
into  three  departments:  the  office  department  wliicli 
handles  correspondence,  orders,  collections,  bookkeep- 
ing and  all  similar  work ;  the  credit  department  which 
passes  on  all  questions  of  the  credit  of  customers ;  the 
statistical  department  which  keeps  all  records,  mclud- 
ing  salesmen's  records,  production  records,  price  rec- 


COMMISSION  MERCHANT  AND  BROKER      165 

ords  and  all  other  statistics  which  are  useful  in  operat- 
ing the  business.  The  sales  department  is  some- 
times split  up  into  as  many  departments  as  there  are 
different  lines  of  goods.  In  such  a  case,  the  head  of 
each  particular  department  interprets  market  quota- 
tions and  fixes  prices,  subject  in  most  cases  to  con- 
firmation by  the  mill.  A  further  division  in  this  de- 
partment is  sometimes  made  when  the  commission 
house  operates  out-of-town  branches.  Traveling 
salesmen  usually  operate  for  the  home  office  in  the 
territory  surrounding  the  branch. 

8.  Operating  a  commission  liouse. — The  various 
operations  of  the  commission  merchant  are  seen  more 
clearly  from  this  example  taken  from  the  cotton  trade. 
It  is  customary  for  the  commission  house  to  utilize 
the  entire  output  of  the  mills  for  which  it  acts.  If 
this  were  not  the  case  the  mill  might  be  put  in  the 
position  of  competing  against  itself. 

In  cases  in  which  the  commission  merchant  does  not 
receive  the  goods  in  actual  possession,  they  are  shipped 
direct  to  the  customer  from  the  mill,  but  are  billed 
to  the  commission  merchant,  who,  in  turn,  bills  them 
to  the  customer.  This  virtually  amounts  to  a  con- 
signment of  the  goods  as  they  come  under  the  control 
of  the  commission  merchant  as  soon  as  they  are  ready 
for  the  market  and  are  subject  to  his  shipping  direc- 
tions. This  method  effects  an  economy  in  re-packing, 
storage  and  delivery  charges.  Goods  are  sold  F.O.B. 
the  mill,  with  freight  allowances  to  the  city  where  the 


166  WHOLESALE  MERCHANDISING 

commission  merchant  has  his  office.  In  this  way,  title 
passes  to  the  buyer  at  the  mill  and  the  risks  of  trans- 
portation are  his. 

In  cotton-goods  lines  which  nse  raw  materials  listed 
on  one  of  the  various  exchanges.  M'ith  constantly  fluc- 
tuating prices,  the  commission  merchant,  on  receipt 
of  a  large  order,  wires  to  the  mill  either  before  or  at 
the  time  of  accepting  the  business  so  that  the  mill  may 
at  once  provide  the  raw  materials  at  a  price  com- 
parable with  the  price  obtained  for  the  finished  prod- 
ucts. To  prevent  an  absolute  loss  it  is  customary  to 
hedge. 

Prices  are  quoted  by  the  commission  house  but 
limits  may  be  set  by  the  mills.  The  commission 
house  usually  knows  the  approximate  cost  of  produc- 
tion in  order  that  it  may  not  go  below  a  figure  which 
will  insure  a  proper  margin  of  profit.  The  mill  also 
controls  prices  in  cases  where  the  demand  and  supply 
are  far  from  equal.  For  example,  in  certain  kinds  of 
cotton  goods,  the  mill  may  be  sold  up  to  full  capacity 
for  some  time.  In  such  cases,  since  for  various  rea- 
sons it  would  be  undesirable  to  take  the  goods  en- 
tirely off  the  market,  it  is  necessary  for  the  commis- 
sion house  to  quote  prices  so  high  as  to  be  practically 
prohibitive.  Conversely,  when  there  is  an  overstock, 
the  commission  house  may  be  instructed  to  quote 
prices  lower  than  would  be  allowable  or  possible  un- 
der ordinary  conditions. 

In  many  cases  in  which  the  mills  would  otherwise 
have  insufficient  capital,  either  to  operate  at  full  ca- 


COMMISSION  MERCHANT  AND  BROKER      167 

pacity  or  to  take  advantage  of  low  figures  in  the 
fluctuating  prices  of  materials,  advances  are  made  by 
the  commission  house.  These  may  be  charged  against 
goods  on  consignment,  bills  receivable,  or  any  other 
good  security.  The  usual  amount  of  such  a  loan  is 
about  75  per  cent  of  the  value  of  the  security.  Often 
there  is  a  fixed  loan  to  the  mill  by  the  commission 
house,  with  the  additional  stipulation  of  advances  to 
be  made  against  goods  as  soon  as  they  are  manufac- 
tured and  consigned.  In  such  cases,  the  commission 
merchant  becomes  also  a  factor,  tho  he  still  continues 
to  be  designated  as  a  commission  merchant. 

The  average  commission  allowed  in  the  cotton  trade 
is  about  4  per  cent,  which  covers  all  selling  costs,  with 
an  additional  1  per  cent  to  the  commission  house  for 
guaranteeing  accounts.  About  75  per  cent  of  the 
manufacturers  of  cotton  goods  in  this  country  sell 
thru  commission  merchants. 

9.  Export  coinmission  houses. — There  are  over  six 
hundred  export  houses  in  New  York  City  and  over 
two  hundred  more  listed  in  other  American  ports. 
The  majority  of  these  may  be  properly  called  export 
commission  houses,  but  they  do  business  in  such  a 
variety  of  ways  that  it  is  well-nigh  impossible  to  give 
a  hard  and  fast  definition  of  their  activities  which 
would  be  accurate  and  comprehensive.  The  fact  that 
these  houses  buy  and  pay  for  goods  which  they  order 
from  manufacturers,  is,  in  itself,  misleading.  Orig- 
inally the  definition  of  an  export  commission  house 
included  only  American  firms  which  received  orders 


168  WHOLESALE  MERCHANDISING 

from  foreign  customers  and  executed  them,  charging 
a  commission  for  this  service.  Now,  however,  these 
houses  have  branched  out  into  numerous  other  related 
activities.  The  bulk  of  their  business  is  on  a  commis- 
sion basis,  but  some  also  do  business  as  merchants, 
while  the  majority  handle  American  agencies  to  the 
extent  of  their  ability.  More  detailed  information  on 
export  commission  houses  will  be  found  in  the  Text 
on  "Foreign  Trade  and  Shipping." 

10.  Necessity  for  the  merchandise  broker. — In  such 
lines  as  canned  goods,  the  producer  is  averse  to  send- 
ing his  goods  to  a  commission  merchant  to  be  sold. 
He  feels  that  he  must  have  either  a  sales  force  of  his 
own  to  market  his  goods,  or  else  enlist  the  services 
of  some  salesman  who  operates  on  his  own  responsi- 
bility. If  the  amount  of  business  will  not  warrant 
organizing  his  own  sales  force,  he  offers  the  goods  to 
the  brokers  in  his  line.  On  the  other  hand,  several 
large  and  well-established  manufacturing  concerns, 
such  as  the  Campbell  Soup  Company,  operate  thru 
merchandise  brokers  rather  than  thru  a  sales  depart- 
ment of  their  own. 

11.  Function  of  the  broker. — In  the  strictest  sense 
of  the  term,  a  broker  is  an  agent  or  middleman  whose 
business  it  is  to  make  a  bargain  for  another,  or  to 
bring  persons  together  to  bargain.  He  may  act  in  the 
interest  of  either  the  buyer  or  the  seller,  but  not  for 
both,  unless  by  their  common  consent.  Compensation 
for  his  services  is  made  in  the  form  of  a  commission 
based  on  the  selling  price  of  the  merchandise. 


COMMISSION  MERCHANT  AND  BROKER      169 

12.  Commission  merchants  and  brokers. — There 
are  two  main  differences  between  the  merchandise 
broker  and  the  commission  merchant.  The  broker 
usually  does  not  have  possession  of  the  merchandise, 
and  he  deals  in  the  name  of  his  principal ;  the  commis- 
sion merchant,  on  the  contrary,  usually  does  have  pos- 
session of  the  property  under  a  consignment  title,  and 
deals  in  his  own  name  in  all  cases.  The  commission 
merchant  uses  a  regular  bill  of  sale  on  which  his  own 
name  appears;  the  broker  gives  a  memorandum  of  the 
transaction,  while  his  principal  usually  does  the  actual 
billing. 

13.  Extent  of  merchandise  brokerage. — Brokers 
are  found  most  commonly  in  lines  such  as  fruits,  coffee 
and  other  food  products.  Recently  there  have  been 
a  number  of  instances  in  which  the  sale  of  manufac- 
tured food  products  have  been  turned  over  to  brokers 
while  the  amount  of  merchandise  brokerage  seems  to 
be  on  the  increase. 

This  may  be  accounted  for  by  the  fact  that  the  brok- 
erage house  is  composed  of  specialists  in  each  line. 
As  a  general  rule,  a  broker  operates  in  a  much  larger 
field  than  any  other  form  of  middleman  and,  for  this 
reason,  is  in  a  better  position  to  make  a  general  sur- 
vey of  the  market  than  any  other  wholesale  middle- 
man. He  can,  therefore,  often  get  better  prices  and 
make  better  deals  for  his  principal  than  any  other  type 
of  middleman  since  he  may  deal  anywhere  within  the 
limit  of  his  principal's  interest. 

14.  Broker's  contract. — Usually,  no   formal  con- 

XIX-13 


170  WHOLESALE  MERCHANDISING 

tract  between  manufacturer  and  merchandise  broker 
is  drawn  up,  since  it  is  understood  that  the  broker  acts 
as  an  agent  for  and  in  the  name  of  the  principaL  Or- 
dinarily the  broker  has  no  authority  to  receive  pay- 
ment for  property  sold  by  him,  and  if  payment  is 
made  to  him  by  the  purchaser,  it  is  at  the  purchaser's 
risk,  unless  under  some  special  circumstances,  author- 
ity to  receive  such  payment  can  be  conferred.  The 
principal  fixes  all  terms  and  prices,  and  makes  all  col- 
lections. 

15.  Broker's  commission. — This  varies  according 
to  the  particular  line  of  business  in  which  the  broker 
is  engaged.  There  are  many  brokers  who  specialize 
in  certain  lines  of  merchandise  and  do  not  deal  in 
other  lines.  Commissions,  in  such  cases,  are  gov- 
erned by  the  custom  of  the  trade.  For  example,  the 
usual  brokerage  on  bulk  olives  is  1/4  per  cent  and  on 
bottled  olives  5  per  cent. 

16.  Broker's  organization  and  operating  method. 
— In  a  typical  merchandise  brokerage  organization 
there  is  a  broker  for  each  principal  line  and  in  addi- 
tion a  few  clerks  and  bookkeepers  to  keep  track  of  the 
commissions.  Some  of  the  most  successful  brokers 
operate  alone  and  do  not  have  even  desk  room.  They 
go  back  and  forth  between  the  manufacturers  and  the 
buyers  for  jobbing  houses,  looking  for  good  lots  to 
offer  and  likewise  good  purchase  needs  to  satisfy. 
When  a  buyer  authorizes  a  broker  to  bid  a  price  to 
a  manufacturer,  the  broker  does  so  at  once  by  tele- 
phone or  telegraph.     If  the  manufacturer  accepts 


COMMISSION  MERCHANT  AND  BROKER    171 

the  bid,  the  broker  makes  out  a  memorandum  of  sales 
as  an  agent  and  then  a  claim  for  commission.  Once 
this  is  done,  he  has  no  further  connection  with  the 
transaction.  But  he  is  not  sure  of  his  commission  un- 
til the  goods  are  actually  delivered  and  paid  for,  as 
cancellations  are  frequent.  Legally,  he  should  be  able 
to  collect  his  commission  if  he  has  received  a  bona  fide 
order,  but  few  brokers  feel  that  it  is  wise  to  do  so. 
This  might  offend  the  manufacturer  so  that  he  would 
not  accept  future  bids  from  the  broker. 

REVIEW 

What  economic  conditions  account  for  the  development  of  the 
commission  business? 

How  does  the  function  of  the  commission  merchant  differ  from 
that  of  the  selling  agent?  Of  the  factor?  Of  the  merchandise 
broker  ? 

What  provisions  is  it  desirable  to  include  in  a  contract  witli  a 
commission  house? 

Assume  that  you  are  a  commission  merchant  for  the  cotton 
goods  trade.  The  mill  for  which  you  operate  has  not  sufficient 
capital  to  take  advantage  of  low  prices  on  raw  materials.  How 
would  you  secure  a  loan  made  to  the  mill?  Under  what  circum- 
stances would  you  consider  it  wise  to  make  a  permanent  loan? 

Assume  that  you  are  a  mill  owner  who  sells  thru  a  commis- 
sion house.     Wlien  would  you  quote  prohibitive  prices? 

How  does  the  merchandise  broker  carry  on  his  business? 

What  is  you  idea  of  an  export  commission  house? 


PART  II 
RETAIL  MERCHANDISING 


RETAIL    MERCHANDISING 

CHAPTER  I 

THE  SELLING  FIELD 

1.  Old  merchandising  methods. — A  few  years  ago 
the  man  who  had  failed  as  a  farmer  or  a  preacher  or 
a  lawyer,  often  opened  a  store,  for  it  was  commonly 
supposed  that  anyone  of  average  intelligence  could 
"run  a  store."  It  was  comparatively  easy  to  do 
so  then,  when  manufacturers  were  wrestling  with  the 
problems  of  production  and  the  countrj^  was  so 
prosperous  that  the  demand  increased  faster  than  the 
competition.  But  with  the  advent  of  keen  competi- 
tion among  merchants  who  analyzed  and  planned, 
those  who  did  not  do  so  soon  began  to  lose  business. 
Today  thousands  of  old-time  storekeepers  who  have 
continued  in  their  old  ways  do  not  make  the  wages  of 
a  day-laborer.  This  type  of  storekeeper  cannot  out- 
live its  generation. 

The  credit  for  the  beginning  of  modern  merchan- 
dising methods  must  be  given  largely  to  the  depart- 
ment stores.  Recently  the  mail-order  houses  and  the 
chain  stores  have  been  doing  even  more  intensive  work. 
Now  manufacturers,  jobbers  and  advertising  asso- 
ciations have  taken  a  hand  and,  in  cooperation  with 
wide-awake,  independent  retailers,  are  doing  exceed- 

175 


176  RETAIL  MERCHANDISING 

ingly  good  work.  For  instance,  the  jobbers  and 
manufacturers  of  several  cities,  such  as  St.  Paul, 
Minnesota;  Council  Bluffs,  Iowa;  St.  Joseph,  Mis- 
souri, have  united  to  make  a  careful  survey  of  the 
retail  field  in  which  they  operate.  A  number  of 
manufacturers  like  Kirkman  and  Sons,  soap  mak- 
ers of  Brooklyn,  New  York,  have  tackled  the  job 
independently,  and  several  allied  organizations — 
among  them  the  Associated  Advertising  Clubs  of  the 
World — have  organized  retail  service  bureaus  to  do 
analytical  and  constructive  work  of  this  sort.  Every 
group  dependent  on  the  retailer  for  the  final  distribu- 
tion of  its  goods  realizes  the  necessity  of  cooperation; 
and  cooperation  must  begin  with  a  careful  analysis  of 
each  retail  field. 

2.  Betailer  must  analyze  territory  and  competition. 
— As  far  as  the  retailer  himself  is  concerned,  no  efforts 
on  the  part  of  manufacturers,  jobbers  and  allied  or- 
ganizations can  take  the  place  of  his  o^vn  analysis, 
much  as  they  may  help  him.  The  retailer  must  know 
his  selling  territoiy  and  his  competition  in  exactly  the 
same  way  in  which  the  manufacturer  or  the  jobber 
does.  It  is  only  on  the  basis  of  the  facts  which  he  finds 
that  he  can  inake  his  plans  for  organizing  and  con- 
ducting his  business.  The  experience  of  the  most  suc- 
cessful retail  organizations,  the  chain  stores,  the  de- 
partment stores  and  the  mail-order  houses,  as  well  as 
that  of  the  wide-awake  independent  retailers  furnishes 
indisputable  evidence  of  this  fact. 

3.  General  store  as  a  type. — In  Part  I  of  this  Text, 


THE  SELLING  FIELD  177 

the  general  treatment  was  from  the  standpoint  of  the 
ordinary  jobber,  the  modifications  necessary  in  other 
types  of  wholesaHng  being  added  in  separate  chapters. 
It  seems  advisable  to  use  the  same  method  in  treating 
retail  merchandising,  and  the  departmentized  general 
store  which  is  in  reality  a  small  department  store,  has 
been  chosen  as  the  most  suitable  type  for  the  general 
discussion  of  the  different  retail  functions.  The  mod- 
ifications necessary  for  specialty  stores,  large  depart- 
ment stores,  chain  stores,  mail-order  houses  and  co- 
operative stores  will  be  given  in  the  last  four  chapters. 
3Iany  of  these,  however,  are  applicable  to  stores  of 
other  types. 

4.  Reason  for  opening  the  store. — Before  any  store 
is  established  there  should  be  a  reason  for  its  existence 
— a  reason  sufficient  to  warrant  the  risk  of  the  venture. 
An  analysis  of  the  selling  field  and  of  the  competition 
will  prove  whether  or  not  the  venture  is  justified  and, 
if  it  is,  will  make  possible  the  formulation  of  definite 
store  plans  and  policies.  Frequently  preliminary 
plans  are  found  to  be  entirely  wrong  Avhen  the  analysis 
is  completed.  The  idea  of  starting  the  store  is  given 
up  unless  the  plan  be  changed  to  meet  the  require- 
ments of  existing  conditions.  Chain  stores  almost 
invariably  succeed,  because  they  are  carefully  planned 
in  advance  on  a  basis  of  a  complete  survey  of  condi- 
tions. They  find  a  way  of  serving  the  community 
better  than  others  have  done  and  this  is  the  final  proof 
of  success. 

5.  Analysis  of  j)opulation. — As  soon  as  a  merchant 


178  RETAIL  MERCHANDISING 

begins  business,  he  secures  as  much  information  as 
possible  concerning  the  population  of  that  city  or  vil- 
lage and  of  the  immediate  vicinity.  Naturally  the 
best  source  of  information  is  the  latest  census.  In 
some  states  a  census  is  taken  every  five  or  six  years. 
Valuable  data  are  often  obtained  from  local  and 
school  censuses.  Supplementary  sources,  however, 
are  frequently  available;  for  instance,  local  news- 
papers may  have  information  concerning  their  imme- 
diate communities.  Generally,  the  retail  section  of 
the  local  chamber  of  commerce  is  of  assistance. 

In  rural  communities,  the  farm  papers  give  infor- 
mation about  resources  and  conditions.  For  instance, 
the  Farmer  s  Review,  which  circulates  mainly  in  cen- 
tral Illinois,  has  made  a  careful  survey,  under  the 
supervision  of  E.  B.  Moon,  a  merchant  of  long  ex- 
perience and  a  trained  investigator,  of  retailing  con- 
ditions from  the  standpoint  of  the  village  and  rural 
sections  of  their  territory,  particularly  as  to  the  aver- 
age size  of  the  neighboring  farms  and  families  and  the 
consuming  power  of  each  community.  In  this  con- 
nection, it  is  interesting  to  note,  as  an  example  of  the 
general  principles  resulting  from  such  surveys,  that 
where  the  farms  are  comparatively  large,  the  consum- 
ing power  is  not  as  great  as  in  a  territory  of  smaller 
farms,  because  the  smaller  the  farms,  the  greater 
the  number  of  people,  the  more  diversified  are  the 
wants,  the  gi'eater  is  the  community  spirit,  and  the 
less  inclined  are  the  people  to  have  accounts  with  the 
big  department  store  in  the  city.     A  general  store 


THE  SELLING  FIELD  179 

often  fails  in  a  territory  forty-two  miles  square  which 
contains  only  large  farms ;  several  stores  may  flourish 
in  a  territory  of  the  same  size  if  the  farms  are  small. 
The  owners  of  big  farms  have  the  city,  not  the  country 
viewpoint.  But  the  country  merchant  must  operate 
his  store  in  accordance  with  the  normal  demand  of  his 
community.  The  small  farmer  is  not  interested  in 
extreme  styles.  He  wants  good  merchandise,  but  not 
necessarily  well-known  goods,  altho  from  reading  his 
farm  papers  he  knows  what  those  goods  are.  It  is  of 
the  utmost  importance  that  a  merchant  inform  him- 
self in  regard  to  facts  and  conditions  of  this  kind,  in 
order  that  he  may  be  able  to  judge  accurately  as  to 
the  possibilities  of  success  in  any  given  community. 

6.  Division  of  j^opiilation  into  classes. — After  a 
merchant  has  secured  these  figures  in  regard  to  the 
number  of  people  in  each  section  in  the  neighborhood 
of  the  proposed  store,  his  first  step  is  to  divide  the 
population  into  groups  in  order  to  judge  their  buying 
capacity.  The  classification  generally  includes  the 
following  classes:  those  who  earn  their  living  in  fac- 
tories ;  those  who  are  dependent  on  agriculture ;  those 
connected  with  wholesale  and  retail  establishments, 
professional  men,  and  a  miscellaneous  group  which 
may,  in  turn,  be  subdivided  if  it  includes  enough  of 
any  one  class  to  warrant  further  classification. 

The  next  step  is  to  analyze  the  manufacturing  class 
— the  first  group — in  order  to  ascertain  how  many 
wage  scales  are  represented,  how  large  the  families  of 
the  workers  are  and  such  matters  as  the  likelihood  of 


180  RETAIL  MERCHANDISING 

strikes.  The  buying  capacity  of  each  sub-group  is 
estimated,  and  constitutes  a  part  of  the  total  sales  pos- 
sible for  the  store.  In  like  manner,  other  groups 
are  checked  up.  The  large  chain  stores  have  definite 
outlines  of  questions  to  be  answered,  the  results  of 
which  are  tabulated  by  the  investigators.  Of  course, 
results  vary  Avidely  with  different  kinds  of  stores  and 
different  sections  of  the  country,  and  usually  a  special 
outline  of  the  investigation  is  developed  for  each  city. 

Similarly,  the  trading  territory  must  be  analyzed 
according  to  all  other  factors ;  for  instance,  Italians  do 
not  buy  hearty  foods,  and  therefore  they  do  not  make 
as  good  customers  for  a  grocer  as  Germans  or  Irish. 
Sectional  traits  have  a  strong  influence.  The  require- 
ments of  people  in  the  South,  and  especially  their 
tastes,  vary  from  those  of  similar  classes  in  the  North 
or  West. 

This  same  principle  of  scientific  analysis  can  be  ap- 
plied with  good  effect  in  the  determination  of  the  pos- 
sibilities of  better  retail  service,  and  an  analysis  of 
the  trade  zone  will  prove  valuable  to  the  management 
of  any  country  general  store.  Since  per  capita  con- 
sumption figures  on  many  staple  and  specialty  prod- 
ucts are  available,  the  local  merchant  can  estimate  for 
himself  with  considerable  accuracy  the  trade  possibil- 
ities of  the  line  of  merchandise  that  he  carries.  If  his 
trade  zone  consists  primarily  of  small  farms,  with 
many  families  and  many  laborers,  and  if  diversified 
rather  than  single  crop  farming  is  done,  he  will  have 
a  better  and  bigger  market  for  provisions  and  gen- 


THE  SELLING  FIELD  181 

eral  equipment  tlian  he  would  have  if  the  farms  were 
large  and  the  number  of  persons  fewer.  He  can  also 
develop  his  business  on  a  cash  basis.  Dairy  farmers 
get  cash  for  milk  every  two  weeks.  Those  who  raise 
hogs  are  able  to  market  them  at  least  four  times  a 
year.  But  the  grain  farmer  has  only  one  harvest; 
therefore,  in  the  grain  belt  there  is  greater  necessity 
of  doing  a  credit  business. 

7.  Otliei'  sources  of  trade. — It  behooves  every  mer- 
chant to  give  careful  consideration  to  the  possibilities 
of  suburban  and  rural  as  well  as  of  local  trade.  Such 
an  analysis  includes  transportation  facilities,  such  as 
train  frequency,  rates  of  fare  and  ease  of  access  from 
the  terminus  to  the  store.  People  come  to  smaller 
cities  and  to  villages,  by  automobile.  If  the  roads  are 
not  so  good  as  those  leading  to  the  stores  of  competi- 
tors, the  firm  should  use  its  influence  to  have  them 
improved.  The  estimated  volume  of  suburban  trade 
should  be  added  to  the  estimate  of  the  local  trade.  If 
a  mail-order  business  is  to  be  attempted,  a  separate 
estimate  must  be  made  of  the  prospective  trade  in  that 
line.  Most  stores  do  not  attempt  a  campaign  of  this 
sort,  however,  until  their  business  has  become  firmly 
established. 

8.  Studying  competitors. — The  average  retailer 
buys  an  old  store  or  starts  a  new  one  without  making 
more  than  a  casual,  off-hand  estimate  of  the  competi- 
tion that  he  will  have  to  meet.  He  "gets  a  hunch" 
that  the  competition  is  not  worth  considering,  and  so 
he  does  not  take  the  trouble  to  make  a  scientific  analy- 


182  RETAIL  MERCHANDISING 

sis  of  the  actual  conditions.  Anyone  familiar  with 
conditions  in  many  villages  and  small  cities  will  recall 
the  result  when  a  new  store  is  opened  and  is  obliged  to 
compete  with  the  efficient  stores  that  already  are  more 
than  capable  of  supplying  the  needs  of  the  community. 
Of  course  the  firms  that  have  been  long  established 
may  be  forced  out,  but  more  frequently  it  is  the  new 
concern  that  succumbs. 

The  analysis  to  be  made  for  any  store  is  naturally 
determined  by  the  type  of  stores — department,  chain, 
specialty,  neighborhood  or  mail-order.  The  relative 
advantages  and  disadvantages  of  the  various  kinds  of 
stores  are  discussed  in  the  Text  on  "Marketing  Meth- 
ods," and  therefore  need  not  be  treated  here  in  detail. 
It  is  sufficient  to  say  that  if  a  new  store  is  to  succeed, 
it  must  have  special  advantages  to  enable  it  to  meet 
the  competition  that  exists.  It  cannot  create  busi- 
ness to  any  great  extent;  it  must  get  the  bulk  of  its 
business  from  the  stores  already  organized  and  there- 
fore must  have  very  valid  reasons  for  its  existence 
against  such  competition. 

A  good  example  of  a  firm's  analysis  of  a  prospective 
situation  is  the  case  of  the  dry-goods  chain  of  the  First 
National  Stores,  a  chain  of  dry-goods  stores  operating 
in  cities  of  5,000  to  20,000,  and  it  is  interesting  be- 
cause these  new  stores  must  compete  mainly  with  gen- 
eral stores,  as  in  communities  of  this  size  general 
stores  are  the  common  type.  The  company  chose 
such  cities  because  the  competition  is  less  severe  in 
them  than  in  larger  cities,  where  department  stores 


THE  SELLING  FIELD  183 

flourish,  or  in  smaller  communities,  where  the  mail- 
order houses  secure  the  greater  portion  of  the  busi- 
ness. 

In  selecting  cities  of  this  size — there  are  thousands 
of  them  in  the  United  States — they  first  chose  those 
in  which  the  sources  of  income  were  about  evenly  di- 
vided between  agriculture  and  manufacturing  and 
then  selected  from  these  the  cities  in  which  competition 
seemed  least  severe. 

Their  analysis,  of  course,  included  each  individual 
store  in  the  cities  investigated.  First  w^as  collected  all 
the  data  available  from  such  reporting  concerns  as 
Dun's  and  Bradstreet's.  Then  all  the  information 
possible  concerning  every  merchant  w^as  gathered, 
even  to  details  in  regard  to  fraternal  and  family  con- 
nections. The  past  history  and  the  business  policies 
of  every  store  were  checked  up,  and  the  good-will 
value  of  each  was  estimated.  Finally,  the  present  ef- 
fectiveness of  each  store's  methods  was  tested  by  an 
efficient  "shopper,"  who  for  a  considerable  time  played 
the  role  of  an  actual  customer. 

9.  Large  department  store  as  a  couipetitor. — 
From  the  standpoint  of  competing  strength  the  gen- 
eral store  which  is  departmentized  need  fear  little 
more  from  a  department  store  of  the  same  size  than 
from  another  general  store ;  for  there  is,  in  reality,  lit- 
tle difl'erence  in  their  inherent  advantages  or  method 
of  operation.  But  when  the  department  store  is  much 
larger,  the  competition  takes  on  a  different  aspect. 
Sometimes  the  competing  store  is  in  the  same  com- 


184  RETAIL  MERCHANDISING 

munity  but,  more  frequently,  it  is  in  a  large  neighbor- 
ing city. 

In  sizing  up  a  large  department  store  as  a  com- 
petitor, a  beginning  is  made  by  tabulating  the  usual 
advantages  of  operation  that  such  a  store  possesses  as 
compared  with  those  of  a  smaller  general  store.  This 
will  include  first,  the  effect  of  size,  convenience,  adver- 
tising jjower,  buying  power  and  the  like.  Then  there 
will  be  the  offsetting  disadvantages  of  high  cost  of 
operation  as  compared  with  the  economy  of  the 
smaller  stores,  the  liability  of  giving  poor  service  be- 
cause of  the  number  of  customers  to  be  accommodated, 
the  lack  of  contact  between  the  proprietors  and  the 
clerks,  and  many  other  drawbacks  that  few  large 
stores  have  been  able  to  rid  themselves  of  entirely. 
The  new  store  must  estimate  its  own  ability  against 
such  competition.  At  the  same  time,  the  ability  of 
stores  already  organized  to  improve  their  service  un- 
der the  stimulus  of  increased  competition  must  not  be 
neglected.  Some  will  be  found  ready  to  imitate  the 
new  store's  methods  while  others  will  settle  down  to 
decay. 

10.  Chain  store  as  a  competitor. — In  planning  to 
compete  with  a  chain  store,  the  management  must 
first  make  as  thoro  an  analysis  of  the  selling  field  as 
the  chain  store  made,  and  must  also  evolve  store  pol- 
icies and  store  methods  as  efficient  as  the  chain  store 
has.  Next,  it  is  necessary  to  study  advantages  pecu- 
liar to  chain  stores. 

The  usual  advantages  of  the  chain  stores,  in  effec- 


THE  SELLING  FIELD  185 

tive  organization,  in  location  of  their  stores,  in  buying 
efficiency,  in  frequency  of  turnover,  in  standard  prac- 
tices and  efficient  selling  methods,  resulting  from  the 
training  of  the  sales  force,  should  be  reckoned  as  ele- 
ments of  efficiency  of  the  competing  chain  store.  At 
tlie  same  time  allowance  should  be  made  for  the  high 
operating  overhead,  which  of  necessity  goes  with  the 
intensive  type  of  chain-store  organization  and  super- 
vision. A  few  so-called  chains  keep  down  the  over- 
head by  eliminating  many  features  of  central  super- 
vision, but  these  concerns  can  hardly  be  called  chains. 
They  are  really  groups  of  independent  stores  working 
thru  a  cooperative  bujnng  syndicate. 

11.  Competition  with  mail-order  houses. — Few 
stores  attempt  to  ascertain  the  amount  of  competition 
to  be  expected  from  mail-order  houses.  They  are 
more  concerned  with  the  reason  for  the  loss  of  business 
to  local  merchants  thru  such  competition,  and  this  is 
the  correct  attitude  when  it  leads  to  constructive 
measures.  One  should  be  fully  cognizant  of  the  ad- 
vantages of  the  mail-ordfer  competitor:  the  complete- 
ness of  stocks  in  all  lines  carried,  the  assumed  lower 
cost  of  the  mail-order  method  of  selling,  the  conve- 
nience to  rural  people  in  shopping  by  mail,  the  advan- 
tage of  buying  ready-to-wear  garments  directly  from 
a  metropolitan  store,  the  clearness  and  accuracy  of 
catalog  descriptions  of  merchandise,  and  the  advan- 
tage in  getting  things  whiph  have  not  been  seen  in  a 
local  store  by  one's  neighbors.  In  measuring  the  com- 
petition, liowever,  allowance  should  also  be  made  for 

XIX— 14 


186  RETAIL  MERCHANDISING 

the  handicaps  in  the  mail-order  method  which  are  to 
the  advantage  of  the  local  retailer. 

12.  Learning  from  competitors. — The  proper  view 
is,  that  competition  is  always  an  advantage.  Many 
merchants  have  learned  modern  methods  of  retailing 
from  a  new  chain  store,  and  have  come  to  realize  the 
wisdom  of  giving  a  clear  and  complete  description  of 
their  goods,  from  mail-order  catalogs.  Numbers  of 
small  stores  are  operating  mail-order  departments 
which  secure  more  business  from  their  radius  of  opera- 
tion than  any  mail-order  house  ever  obtained  from  a 
territory  of  the  same  size  with  similar  lines  of  mer- 
chandise. 

REVIEW 

Who  originated  modern  merchandising  methods?  What  are 
the  manufacturers,  jobbers,  etc.,  doing  to  aid  cooperation? 

Why  should  each  retail  field  be  analyzed?  What  are  the 
fundamental  points  of  the  analysis;  in  a  general  store;  a  chain 
store? 

What  are  the  sources  of  information?  What  groups  are  anal- 
yzed? Is  a  knowledge  of  the  per  capita  consumption  of  goods 
advantageous?  How  are  methods  made  to  conform  to  condi- 
tions ? 

Give  two  views  on  selecting  a  location  and  deciding  the  rent  to 
be  paid.  What  is  the  policy  of  department  stores;  of  specialty 
shops;  drug  stores;  cigar  stores? 

Why  should  competition  be  scientifically  considered?  Outline 
the  method  pursued  by  one  dry-goods  chain. 

What  are  the  advantages  and  the  disadvantages  of  competition 
in  department  stores;  chain  stores;  mail-order  houses?  What 
may  the  merchant  learn  from  mail-order  competitive  methods? 


CHAPTER  II 

MERCHANDISING  POLICIES 

1.  Necessity  for  statement  of  business  j)olicies. — 
Every  retailer  who  is  about  to  open  a  new  store  won- 
ders what  stand  he  should  take  in  regard  to  such 
troublesome  questions  as  cut-price  competition,  sell- 
ing goods  on  credit,  the  disposition  of  slow-selling 
stocks,  the  settlement  of  comijiaints  and  the  many- 
other  problems  that  arise  daily  in  every  store.  Fre- 
quently, the  merchant  is  so  busy  fixing  up  his  store 
and  buying  his  stock  that  he  leaves  all  such  questions 
to  be  settled  when  they  come  up.  The  result  is  dis- 
astrous. In  the  midst  of  the  first  busy  morning,  a 
request  for  credit  is  made  by  someone  of  doubtful 
credit  standing,  and  the  method  used  in  settling  that 
one  case  is  allowed  to  determine  the  store's  policy. 
The  result  is  likely  to  be  bad,  for  the  decision  has  been 
made  under  stress  and,  while  it  may  have  been  a  good 
one  for  the  particular  case,  it  ought  not  to  serve  as  a 
basis  for  the  store's  permanent  credit  policy. 

2.  Two  kinds  of  j)olicies. — As  in  wholesale  mer- 
chandising, there  are  policies  that  affect  the  customer, 
and  those  that  affect  the  employes  of  the  store.  In 
this  chapter  we  shall  confine  ourselves  to  a  discussion 

187 


188  RETAIL  MERCHANDISING 

of  the  first  kind,  leaving  the  treatment  of  house  poli- 
cies until  Chapter  IV,  which  deals  with  the  operation 
of  the  business. 

3.  Class  of  trade. — The  proprietor  of  a  high-grade 
shoe  store  in  a  city  of  about  one  hundred  thousand, 
situated  near  the  Ohio  River,  recently  made  the  fol- 
lowing interesting  comment  concerning  the  relation 
of  the  store  policy  to  the  class  of  trade : 

I  didn't  realize  until  today  what  a  business  policy  is. 
Yesterday  a  poor  colored  woman  came  into  my  store,  and 
the  clerk,  a  young  Southerner,  refused  to  wait  on  her;  so  1 
fitted  her  myself.  Then  I  told  my  clerks  that  while  our 
store  ought  not  to  cater  to  colored  people  because  our  lines 
were  of  too  high  a  grade,  I  felt  we  ought  to  treat  every  one, 
black  or  white,  courteously.  With  a  little  thought  we  could 
see  to  it  that  any  one  who  entered  our  store  was  offered  the 
nearest  thing  possible  to  their  needs  and  desires,  without  at 
the  same  time  encouraging  trade  unfitted  to  our  store. 
Frankly,  I  don't  want  the  colored  trade,  because  so  few  col- 
ored people  can  afford  our  shoes,  and  the  few  who  could, 
would  drive  away  many  of  the  well-to-do  in  our  section  who 
are  our  logical  customers. 

So  I  instructed  the  clerks  to  do  their  best  to  serve  well 
every  person  who  honored  us  with  an  offer  of  their  patronage, 
but  not  to  encourage  those  who  should  naturally  trade  at 
some  other  type  of  store.  Among  these  I  include  the  people 
of  all  nationalities,  Italians  as  well  as  negroes,  who  should 
buy  more  moderate-priced  shoes  than  we  carry,  or  can  afford 
to  carry  in  an  expensively  equipped  store  in  a  high-class 
neighborhood.  You  see  I  was  deciding  a  business  policy, 
altho  I  did  not  realize  it  at  the  moment.  Hereafter  my  clerks 
will  have  a  rule  by  which  to  conduct  our  business,  so  far  as 
the  class  of  trade  to  whom  we  cater  is  concerned. 

A  store  exists  for  the  public;  not  the  public  for 


MERCHANDISING  POLICIES  189 

the  store.  Onl}^  in  small  communities  can  one  store 
cater  to  all  classes  of  trade.  Therefore,  after  having 
decided  on  the  chentele  desired,  it  is  the  duty  of  the 
management  to  study  the  needs  and  wishes  of  the 
group  selected,  in  order  that  the  store  may  prove 
by  means  of  adequate  service  its  right  to  exist,  and 
may  prosper  because  it  serves  a  section  or  a  class 
better  than  its  competitors  do. 

In  rural  communities  and  in  small  cities,  the  class 
lines  are  not  so  sharply  drawn;  in  fact,  any  division 
that  is  made  is  likely  to  be  based  upon  sections  rather 
than  upon  classes.  The  general  store  in  the  rural 
community  must  be  merchandised  for  average  custom- 
ers, who  constitute  a  large  majority,  leaving  the  occa- 
sional customers,  who  can  afford  the  novelties  and 
exclusive  lines,  to  obtain  such  goods  by  a  shopping 
excursion  to  a  nearby  city. 

4.  Tlie  big  appeal. — After  the  class  of  trade  has 
been  selected,  the  store  must  find  its  best  appeal. 
This  ap23eal  must  be  based  upon  price,  service  or 
quality  of  merchandise,  for  these  are  the  principal  as- 
sets of  the  store.  Will  the  clientele  demand  goods 
of  fair  quality  at  competitive  prices,  but  not  expect 
a  great  deal  of  service,  or  will  they  demand  that  both 
goods  and  service  be  of  the  highest  quality  and  be 
willing  to  pay  accordingly? 

Recently  the  proprietor  of  a  small  general  store 
came  to  the  decision  that  his  customers  would  be 
satisfied  with  less  expensive  service  than  he  was 
giving  them,   and   would   prefer   lower   prices.     He 


190  RETAIL  MERCHANDISING 

found  he  could  cut  down  his  prices  about  five  per 
cent  if  he  moved  to  a  cheaper  location  and  reduced 
the  expense  of  delivery  and  other  services.  He  did 
move,  and  now  he  is  making  price  his  "big  appeal" 
and  is  competing  successfully  with  the  chain  store 
across  the  street  and  the  department  store  in  the 
neighboring  city. 

But  too  many  merchants  make  the  mistake  of 
thinking  that  "price"  is  the  only  appeal.  In  their 
opinion  the  purpose  of  advertising  is  to  sell  goods  at  a 
cut  price.  To  the  average  retailer,  the  appeal  of 
* 'money's  worth,"  or  money  value  in  quality  goods, 
seems  stronger  and  more  convincing  than  either  a 
service  or  a  quality  appeal. 

Few  country  storekeepers  realize  that  they  are 
making  their  main  appeal  for  business  along  special 
lines.  If  they  would  take  the  trouble  to  find  out 
who  their  customers  are  and  what  it  is  that  has  se- 
cured their  trade,  they  could  readily  locate  their  "big 
appeal"  and  use  it  much  more  intelligently  and  ef- 
fectively. 

.5.  Buying  policies. — First  in  importance,  after 
knowing  the  quality  of  merchandise  desired,  is  the 
question  of  nationally  advertised,  as  against  un- 
branded,  goods.  In  order  to  decide  upon  a  policy,  it 
is  only  necessary  for  the  merchant  to  compare  the  rela- 
tive advantages  of  these  two  kinds  in  the  light  of 
his  trade  requirements.  Generally  the  countrj^  store- 
keeper succeeds  best  with  nationally  advertised 
brands;  the  same  is  true  of  the  specialty  shop  in  the 


MERCHANDISING  POLICIES  191 

city  until  it  becomes  firmly  established.  Of  course 
it  is  possible  to  sell  unbranded  goods  or  goods  with 
private  brands  on  the  strength  of  the  shop's  standing, 
but  some  of  the  best  specialty  shops,  even  when  they 
do  this,  use  the  name  of  a  nationally  kno^Mi  manufac- 
turer as  well  as  their  own.  Good  merchants  will 
succeed  under  either  policy,  provided  other  things 
are  in  harmonj^  but  no  merchant  will  succeed  who 
mixes  different  policies  indiscriminately. 

6.  Maintenance  of  prices. — Price  maintenance  is 
one  of  the  most  important  questions  before  the  aver- 
age retailer  today.  Every  merchant  must  size  up  his 
own  situation,  and  in  the  light  of  its  advantages  and 
disadvantages,  determine  his  price  policy,  especially 
with  reference  to  branded  articles.  He  is  a  wise  mer- 
chant who  can  find  a  way  to  keep  out  of  cut-rate 
competition. 

Firms  that  feel  it  necessary  to  meet  the  cut-rate 
prices  of  competitors,  have  a  policy  of  making  the 
reduction  when  at  least  two  other  representative  con- 
cerns cut  prices.  Others  start  a  back-fire  at  once  by 
making  a  leader  of  some  article.  Frequently,  firms 
that  maintain  advertised  prices  on  branded  articles  run 
unbranded  goods  as  leaders  at  a  cut  price.  Again, 
it  is  customary  to  meet  cut  prices  by  appealing  to 
manufacturers  for  goods  for  a  special  sale  on  a  basis 
that  will  not  represent  a  loss  to  the  retailer.  Some- 
times cut-rate  competition  is  met  by  using  a  loss- 
leader — that  is,  an  article  which  is  sold  purposely  at  a 
loss.     In  this  way,  the  advantage  of  a  bargain  is  ob- 


192  RETAIL  MERCHANDISING 

tained  without  demoralizing  the  sale  for  staple  goods. 
For  the  retailer  who  adopts  the  policy  of  maintaining 
prices  on  standard  staple  goods,  the  whole  problem  re- 
solves itself  into  one  of  finding  ways  of  meeting  price 
competition  and  of  taking  advantage  of  the  element  of 
low  prices  as  a  selling  appeal,  without  demoralizing 
his  sale  of  staple  articles,  on  which  the  merchandising 
foundation  of  his  business  is  laid.  Above  all  things, 
a  merchant  should  have  definite  policies  and  hold  to 
them. 

Some  stores  prefer  lines  that  they  can  control  ex- 
clusively— lines  on  which  they  can  always  maintain  the 
price.  Then  they  meet  competitors'  prices  on  brands 
or  grades  of  goods  which  both  carry,  but  maintain  the 
price  on  lines  which  they  control  themselves.  This 
is  a  twofold  advantage  for  it  offers  the  opportunity 
to  use  both  the  quality  and  the  price  appeal  in  the  ad- 
vertising. 

7.  Slow-selling  systems. — Retailers  have  long  since 
realized  the  wisdom  of  keeping  themselves  informed 
in  regard  to  the  age  of  each  group  of  stock.  In  lines 
like  millinery,  it  is  customary  to  check  over  the  stock 
at  least  every  week;  some  merchants  check  it  every 
day.  Seasonal  millinery  more  than  a  fortnight  old  is 
considered  slow-selling,  and  means  must  be  taken  to 
dispose  of  it. 

Some  of  the  various  methods  are:  To  hold  a  spe- 
cial sale;  to  reduce  the  price  of  the  goods;  and  to 
give  a  commission  or  a  bonus  to  the  salespersons  who 
succeed  in  selling  them.     The  most  common  of  the 


MERCHANDISING  POLICIES  193 

commission  methods  is  the  so-called  P.M.  (premium 
money  system),  which  provides  a  definite  bonus  on 
each  article.  It  is  an  established  fact  that  a  fifty- 
cent  P.jNI.  will  do  more  than  a  two-dollar  reduction 
in  price  to  move  the  twenty-dollar  women's  ready-to- 
wear  suit  that  is  overstaying  its  time.  If  the  customer 
learns  of  the  circumstances,  she  is  likely  to  feel  resent- 
ment, even  tho  she  may  have  obtained  a  good  bargain. 
Therefore,  it  is  doubtful  whether  this  system  should  be 
used,  for  it  does  not  pay  to  have  secret  practices  in  any 
business.  Furthermore,  the  system  is  open  to  easy 
abuse.  It  should  be  used  only  in  a  few  lines  like  cloth- 
ing, and  then  only  when  the  goods  are  entirely  desir- 
able and  are  slow-moving  because  of  over  purchase  or 
some  other  fault  of  the  retailer.  There  are  plenty  of 
other  methods — such  as  the  concentration  of  sales  ef- 
forts, special  advertising  and  the  like — which  do  not 
involve  the  disadvantages  of  the  system  just  de- 
scribed, and  which  most  retailers  are  finding  prefer- 
able, even  tho  they  require  more  thought  and  effort. 
8.  Returned  goods  and  refunds. — The  policy 
among  retail  merchants  to  refund  in  full  for  goods 
returned  is  now  so  well  established  that  it  is  difficult 
to  realize  that  the  wisdom  of  it  was  ever  open  to 
question.  Yet  it  was  only  a  few  decades  ago  that 
the  "your-money-back-if-you-want-it"  policy  came 
into  vogue.  It  has  done  more  than  anything  else, 
except  possibly  the  one-price  policy,  to  remove  the 
consumer's  old-time  suspicion  concerning  merchan- 
dising methods  and  establish  confidence  and  good- 


194  RETAIL  MERCHANDISING 

will.  Furthermore,  it  has  a  tendency  to  prevent  shop- 
ping around  unnecessarily.  The  customer  need  not 
hesitate  and  put  off  the  decision  until  later  if  he  feels 
reasonably  certain  of  selection  and  knows  at  the  same 
time  that  if  his  decision  should  prove  a  mistake  he 
may,  within  a  set  time,  return  the  purchase  for  ex- 
change value  or  a  refund. 

It  is  only  to  be  expected,  however,  that  such  a  policy 
should  lead  to  some  abuse.  Frequently  a  customer 
orders  a  number  of  expensive  rugs,  only  to  return 
them  a  few  days  later  after  using  them  during  some 
social  event  at  his  home;  fortunately,  however,  not 
everyone  resorts  to  small  practices  of  this  kind.  It 
seems,  however,  to  be  the  storekeeper's  lot  to  be  im- 
joosed  on  occasionally,  just  as  it  is  that  of  every  other 
man  in  business.  In  some  cities,  groups  of  people — 
sometimes  organizations  like  the  chamber  of  com- 
merce— have  taken  steps  to  narrow  the  time  limit  and 
to  restrict  the  kind  and  amount  of  merchandise  that 
may  be  returned.  In  other  cities  the  merchants  have 
conducted  a  general  campaign  in  which  they  have  ap- 
pealed directly  to  the  public  for  justice  in  this  re- 
spect. In  still  other  localities  individual  retailers  have 
adopted  different  measures  of  various  kinds.  For  in- 
stance, one  women's  ready-to-wear  shop,  in  delivering 
garments,  sends  a  fitter  who  makes  it  a  point  to  see 
that  the  customer  is  satisfied.  No  returns  are  allowed 
after  the  goods  have  been  fitted  and  accepted  in  the 
customer's  own  home,  except,  of  course,  in  the  case 
of  imperfections.    But  in  general,  any  strict  preven- 


MERCHANDISING  POLICIES  195 

tive  measures  are  likely  to  drive  away  more  than 
enough  business  to  cover  the  occasional  losses  from  re- 
turns. Therefore,  a  liberal  policy  of  credit  for  return 
within  a  few  days  and  at  the  current  price  when  re- 
ceived, is  the  best  policy.  The  merchant  who  wants  to 
succeed  must  remember  that  he  is  selling  more  than 
mere  merchandise — he  is  selling  satisfaction. 

9.  Credit  policy. — It  is  natural  to  suppose  that 
most  retailers  who  do  not  succeed  can  attribute  their 
failure  to  unwise  credits  to  their  customers.  This, 
however,  is  not  true ;  only  four  or  five  per  cent  of  the 
failures  are  due  directly  to  that  cause.  The  credit 
system  costs  money,  but  at  the  same  time  it  decreases 
the  amount  of  shopping  that  the  customer  must  do, 
and  increases  the  amount  of  sales  to  one  customer. 
The  woman  who  has  established  a  charge  account 
with  a  general  merchant  trades  at  his  store  regularly, 
but  the  one  who  pays  cash  generally  wanders  around 
shopping  from  one  store  to  another,  buying  a  few  of 
her  items  at  each  store  and  increasing  the  selling  ex- 
pense of  each.  It  is  an  established  fact  that  the  aver- 
age of  sales,  to  each  person  who  enters  both  the  gen- 
eral store  and  the  department  store,  is  much  higher 
among  those  stores  that  liave  charge  systems  than 
among  those  that  operate  entirely  on  a  cash  basis. 
It  is  sufficient  to  note  here  that  the  retailer  should 
consider  every  phase  of  credit-giving  as  it  affects  his 
community,  his  class  of  trade,  his  line  and  his  com- 
petition, and  then  formulate  his  policy  accordingly. 
10.  Adjustments.— The  day  of  whining  and  de- 


196  RETAIL  MERCHANDISING 

layed  settlement  of  "complaints,"  as  they  are  called, 
is  over,  and  in  its  place  has  come  the  modern  adjust- 
ment policy.  "The  customer  is  always  right,"  said 
Marshall  Field.  He  meant  that  the  customer  is  right 
in  expecting  a  prompt  investigation  of  the  facts,  and 
then  an  equally  prompt  adjustment  satisfactory  to 
the  customer  or  a  refund  of  the  amount  in  full.  In 
one  store,  statistics  show  that  75  per  cent  of  the  com- 
plaints are  due  to  mistakes  or  misunderstandings  on 
the  part  of  the  customer.  Yet  the  customer  is  right 
in  reporting  what  seems  to  him  faulty,  and  store- 
keepers should  be  anxious  to  have  faults  reported. 
The  customer  who  nurses  a  grievance  and  does  not 
give  the  store  an  opportunity  to  clear  up  the  misun- 
derstanding is  the  one  who  is  really  hard  to  handle. 
On  the  other  hand,  the  man  who  complains  bitterly 
and  then  receives  satisfaction,  frequently  proves  a 
most  loyal  friend  of  the  store.  Therefore  it  appears 
to  be  good  business  for  a  merchant  to  allow  himself 
to  be  imposed  upon  occasionally. 

One  of  the  best  statements  of  a  liberal  policy  is  that 
of  a  certain  concern  which  handles  men's  clothing. 
The  firm  have  in  their  store  a  placard  stating  that  if 
their  clothing  proves  unsatisfactory,  they  will  allow 
the  customer  the  purchase  price  of  the  goods  returned 
toward  a  new  garment,  and  will  deduct  only  what  the 
customer  feels  is  a  fair  allowance  for  the  use  already 
obtained.  In  this  way  they  satisfy  the  customer 
without  demoralizing  their  business  by  using  an 
irregular  and  unbusinesslike  policy  of  adjustment. 


MERCHANDISING  POLICIES  197 

Some  merchants  think  that  a  policy  as  hberal  as  this 
is  impracticable,  but  there  is  plenty  of  evidence  to 
show  that  it  can  be  successfulh^  followed. 

11.  Deliveries. — The  decision  as  to  whether  or  not 
a  delivery  system  is  necessary  will  depend  on  the  class 
of  trade,  the  line  handled,  the  custom  of  the  com- 
munity and  the  size  of  the  town.  IVIany  country 
stores,  that  formerly  had  no  delivery  system,  have  in- 
stalled one  in  recent  years.  The  tendency  seems  to 
confirm  the  statement  of  the  late  J.  J.  Hill,  that  the 
trouble  of  modern  life  is  the  cost  of  high  living  rather 
than  the  high  cost  of  living.  As  long  as  people  con- 
tinue to  demand  delivery  service,  the  retailer,  as  their 
servant,  must  continue  to  give  them  what  they  want. 

A  good  delivery  system  has  an  advertising  value 
as  well  as  a  service  value.  Customers  like  to  have 
their  goods  delivered  by  neatly  uniformed  boys  from 
spic  and  span  automobiles,  and  they  are  apparently 
willing  to  bear  the  expense  involved.  Conversely, 
some  stores,  generally  of  the  cheaper  grade,  en- 
gage a  separate  concern  to  handle  their  deliveries 
realizing  that  customers  do  not  wish  to  have  it  known 
that  they  trade  at  a  cheap  store.  Others  combine 
and  adopt  a  cooperative  delivery  system.  In  any 
event,  the  delivery  system  should  be  governed  by  a 
definite  policy,  and  it  should  j^rovide  for  the  solution 
of  such  incidental  problems  as  the  handling  of  goods 
other  than  purchases,  as  an  accommodation,  and  spe- 
cial and  irregular  deliveries. 

12.  Store  creed. — Certain  portions  of  the  store's 


198  RETAIL  MERCHANDISING 

policies  should  be  constantly  before  each  employe  and 
likewise  before  the  public. 

The  following  statement,  which  is  incorporated  in 
one  of  the  advertisements  of  John  Wanamaker,  is  an 
example : 

THE    WANAMAKER    CONCEPTION    OF    A    GREAT 
STORE'S    DUTY    TO    ITS    PUBLIC 

To  gather  conveniently  under  one  roof  all  the  world's 
multitudinous  products,  for  personal  wear  and  the  furnish- 
ing of  the  home.  To  select  them  with  expert  care  and  wise 
discrimination — buying  always  the  best,  but  buying  with 
such  knowledge  and  judgment  that  the  merchandise  may  al- 
ways be  sold  at  the  lowest  possible  price. 

Keeping  constantly  in  stock  the  staple  merchandise  in 
general  demand,  but  assuming  the  greater  duty  of  sending 
our  buyers  into  strange  places  and  over  little-traveled  roads, 
seeking  for  the  new  and  different  things  not  found  in  the 
usual  channels  of  trade. 

Always  seeking  to  do  a  better  thing  than  has  been  done. 
Working  aggressively  with  manufacturers  to  have  mer- 
chandise better  made,  or  manufacturing  conditions  improved. 
To  place  orders  conveniently,  so  that  economics  in  the  cost 
of  production  may  be  secured  for  our  public.  To  develop 
constantly  newer  and  better  styles,  and  yet  have  them  pro- 
duced at  prices  usually  lower  than  equal  qualities  in  com- 
monplace designs. 

Recognizing  the  fact  that  errors  will  creep  in  to  blight  the 
best  intentions,  in  a  great  institution  that  depends  upon  hu- 
man heads  and  hands,  many  of  which  must  be  constantly 
newly  trained ;  but  always  regarding  each  fault  as  monstrous 
until  cured,  so  that  continued  error  cannot  exist. 

Providing  a  store  service  that  is  polite,  intelligent,  prompt, 
and  efficient,  to  make  shopping  here  as  pleasant  as  it  is  satis- 
fying. Recognizing  the  fact  that  good  morals  and  good 
manners  are  of  as  much  importance  as  good  merchandising, 


MERCHANDISING  POLICIES  199 

that  the  customer's  comfort  and  convenience  deserve  first 
thought,  and  that  nothing  but  perfect  satisfaction  ever  seals 
a  sale. 

To  do  every  minute  the  utmost  that  we  know,  as  the  ex- 
perience of  almost  half  a  century  has  taught,  sparing  no 
pains  or  expense  where  service  or  facilities  can  be  improved. 
To  do  the  best  that  is  known  today,  and  still  seek  for  the 
better  tomorrow  and  do  it. 

REVIEW 

^^^ly  is  a  settled  credit  policy  necessary?  How  do  large  or- 
ganizations teach  the  store  policies  to  the  employes? 

How  does  a  firm  cultivate  the  class  of  trade  desired?  What 
customers  does  the  country  general  store  seek  to  obtain? 

On  what  bases,  beside  price,  may  the  store  rest  its  main  aj^peal  ? 
Discuss  the  value  of  such  appeals? 

Compare  the  advantages  of  nationally  advertised  and  private 
brand  goods. 

What  is  the  change  in  opinion  concerning  the  turnover  ?  What 
is  the  modern  idea  of  the  proper  service  of  the  store  to  the  pub- 
lic?    Is  it  advisable  to  carry  a  full  stock? 

Give  the  advantages  and  disadvantages  of  price  maintenance. 
What  is  a  "loss-leader"  ?     How  is  cut-price  competition  met  ? 

Discuss  several  methods  of  disposing  of  slow  selling  goods. 
What  are  the  advantages  of  the  returned-goods  and  refund  sys- 
tem ?     How  may  it  be  abused  ? 

What  are  the  gains  from  a  credit  system?  What  are  the  ad- 
vantages of  discounting  purchase  invoices? 

How  are  "  complaints  "  treated  today?  In  what  ways  is  a  de- 
livery system  valuable? 

Discuss  the  creeds  of  the  ^larshall  Field  and  Wanamaker 
stores  and  apply  them  to  small  stores.  How  may  they  be 
brought  to  the  attention  of  the  employes? 


CHAPTER  III 

ORGANIZING  AND  FINANCING  THE  STORE 

1.  Meaning  of  efficient  organization. — For  some 
years  past  we  have  heard  much  of  efficiency  and  of 
efficient  methods  of  organization.  In  factory,  store 
and  office  in  essence  they  are  the  same — specialization 
to  the  highest  possible  degree.  With  specialization 
comes  a  study  of  methods  of  work  for  the  purpose  of 
discovering  the  simplest  and  most  direct.  Next  comes 
the  setting  of  standards  of  quality  and  quantity,  to- 
gether with  a  scientific  selection  of  workers;  then  a 
systematic  training  of  these  workers  and  a  study  of 
working  conditions  in  order  that  employers  may  help 
employes  to  attain  the  standard.  Finally,  an  impetus 
toward  the  desired  goal  is  furnished  in  the  form  of 
financial  reward,  commendation  or  promotion  to  all 
who  increase  their  efficiency. 

That  such  methods  are  applicable  in  a  retail  store 
as  in  a  factory  or  office  is  proved  beyond  a  doubt  by 
the  examples  of  such  stores  as  Marshall  Field  and 
Company  and  Wilham  Filene's  Sons  Company. 
Nor  is  the  use  of  efficiency  methods  limited  to  the  use 
of  large  stores.  Hundreds  of  small  stores,  such  as 
Garver  Brothers  in  Strassburg,  Ohio,  have  become 
just  as  efficient  relatively  as  the  two  large  ones  just 

200 


ORGANIZING  AND  FINANCING  201 

mentioned.  Great  size,  because  of  the  working  con- 
ditions that  it  involves  is,  in  reality,  a  handicap.  The 
so-called  "small  merchant"  is  in  such  close  touch  with 
all  phases  of  his  business  that  he  is  in  a  much  better 
position  than  his  large  competitor  when  it  comes  to 
the  matter  of  efficient  supervision. 

The  principles  of  organization  need  not  be  restated 
here.  Efficient  organization  in  a  retail  store,  irre- 
spective of  its  kind  or  size,  means  the  effective  coordi- 
nation of  all  the  separate  factors  involved  in  the  oper- 
ation of  the  business.  The  store  which  best  serves  the 
people  on  whom  it  depends  for  business  can  be  de- 
pended upon  to  yield  a  satisfactory  net  profit. 

Then,  too,  efficient  organization  implies  efficient 
management.  A  general  manager,  who  is  free  to 
rise  above  the  details  of  operation  and  view  the  store 
and  its  several  parts  as  a  whole,  seeks  to  improve  his 
organization  according  to  the  laws  of  balance  and 
proportion.  His  duty  is  to  see  to  it  that  each  part 
of  his  organization  pulls  its  full  share  of  the  load  at 
a  minimum  expense.  Thus  it  is  difficult  in  this  dis- 
cussion to  differentiate  the  terms  organization,  op- 
eration and  management.  The  main  point  is  that 
efficient  operation  is  impossible  without  efficient  or- 
ganization as  well  as  efficient  management. 

2.  Functionalizing  the  bushiess. — The  first  task 
in  studying  the  organizatic«i  of  any  business  is  to 
classify  the  work  according  to  its  different  functions. 
The  average  business  readily  lends  itself  to  the  usual 

XIX-15 


202  •  RETAIL  MERCHANDISING 

classification  which  includes  the  four  functions  of  pro- 
duction or  buying,  finance,  marketing  or  selling  and 
accounting.  In  the  case  of  the  wholesale  house, 
as  we  found,  there  is  some  modification  of  this 
division,  and  the  same  is  true  of  the  retail  con- 
cern. The  modification  in  the  latter  instance  does 
not  consist  in  the  omission  of  certain  usual 
functions,  but  in  a  redistribution  of  emphasis  so 
that  sometimes  a  single  function  is  divided  between 
two  departments  of  the  business,  while  in  other  cases 
a  major  department  may  not  quite  cover  a  single 
function.  In  small  concerns,  there  may  be  no  divi- 
sion of  the  functions;  the  proprietor  himself  may 
look  after  all  four  functions  of  the  business.  But 
in  any  case,  be  the  business  large  or  small,  and  ir- 
respective of  the  personnel  of  the  store,  it  will  be 
found  that  the  four  main  functions  are  always  pres- 
ent. 

3.  Departmentizing  the  business. — Department 
stores  have  taught  all  other  types  of  retailers  the  value 
of  departmentizing  the  business.  This  is  especially 
true  of  general  stores.  As  a  matter  of  fact,  the  gen- 
eral stores  which  are  not  yet  departmentized  are  rap- 
idly becoming  so,  for  only  thru  such  means  can  the 
merchant  be  sure  which  lines  of  merchandise  are  prof- 
itable and  which  are  not.  Yet  such  departmentiza- 
tion  should  not  be  carried  to  the  same  degree  in  all 
general  stores.  It  may  be  said  that  in  any  general 
store  doing  a  business  of  $100,000  a  year,  the  records 
necessary  to  keep  track  of  the  business  by  depart- 


I=g 


^ 


r 


ORGANIZING  AND  FINANCING  203 

ments,  should  not  require  more  than  one  hour  daily 
of  one  clerk,  in  addition  to  the  usual  time  given  to  the 
store's  records  before  departmentization.  Counting 
this  clerical  expense  and  the  expense  for  the  extra  rec- 
ord forms  and  books  required,  the  amount  directly 
chargeable  to  the  departmentization  should  not  cost 
more  than  a  few  hundred  dollars  a  year,  and  the  ad- 
vantages resulting  are  certain  to  be  worth  many  times 
that  amount. 

4.  Organization  chart. — The  division  of  a  retail 
business  into  functions  may  be  readily  understood 
from  the  attached  organization  chart  of  a  city  de- 
partment store.  In  this  concern,  the  president  is  also 
the  general  manager.  The  vice-president  is  merchan- 
dise manager,  in  charge  of  all  buying.  The  treasurer 
is  records  manager  in  charge  of  accounting;  and  the 
secretary  the  store  superintendent.  In  the  general 
store  any  one  or  more  of  these  divisions  may  be  com- 
bined with  others,  so  that  in  some  stores  we  find  tlie 
general  manager,  the  sole  owner  and  supervisor  of  the 
business. 

5.  General  manager. — The  merchant  is  the  gen- 
eral manager.  He  is  either  the  owner,  the  principal 
partner  or  a  stockholder  of  the  business;  or  in  some 
cases,  he  is  the  representative  of  the  owner.  As  gen- 
eral manager,  he  has  the  responsibility  that  the  name 
of  the  office  implies;  and  except  in  very  large  stores, 
he  is  in  direct  charge  of  one  or  more  functions. 
As  the  merchandising  is  the  most  difficult  work  in 
the  store,  the  general  manager  usually  supervises  it. 


204*  RETAIL  MERCHANDISING 

In  a  very  small  store,  the  general  manager  personally 
looks  after  all  the  functions — buys  the  merchandise, 
employs  and  trains  the  store  force,  and  acts  as  floor- 
walker. But  as  the  store  grows  in  size,  the  general 
manager  must  train  others  to  look  after  some  of  the 
phases  of  the  store's  work,  and  must  himself  give  his 
time  to  the  solution  of  the  larger  problems  of  manage- 
ment. Yet  a  good  general  manager  finds  time  to 
work  daily  with  his  sales  force.  No  man  can  run  a 
store  successfully  simply  by  the  examination  of  rec- 
ords and  statistics. 

6.  Fmancing  a  store. — Financing  a  retail  store  is  a 
simple  matter  compared  to  financing  a  wholesale 
house,  because  of  the  smaller  volume  of  business,  the 
larger  working  margin  and  the  willingness  of  jobbers 
and  manufacturers  to  assist  any  worthy  retail  enter- 
prise. Generally,  the  merchant  has  sufficient  capital 
to  buy  a  small  stock,  and  if  he  buys  carefully  and 
runs  his  store  with  reasonable  efficiency  he  should  be 
able  to  turn  over  his  stock  by  the  time  his  merchan- 
dise statements  become  due.  John  Wanamaker  be- 
gan with  twenty-four  dollars,  and  many  merchants 
with  the  cooperation  of  wholesalers,  have  founded  a 
big  business  on  even  less.  Yet  it  is  well  to  remember 
that  the  percentage  of  failures  in  the  retail  business  is 
high,  and  about  twenty-nine  per  cent  of  all  failures, 
according  to  Bradstreet's,  are  due  to  a  lack  of  capi- 
tal. Even  more,  however,  are  due  to  incompetence. 
Every  large  wholesale  house  can  point  to  a  consider- 
able number  of  prosperous  and  successful  retail  con- 


ORGANIZING  AND  FINANCING  205 

cerns  founded  with  very  small  capital,  with  which 
they  have  cooperated.  Any  honest  man  who  knows 
merchandise  and  merchandising  can  obtain  help  in 
founding  a  retail  store,  provided  the  location  and  the 
general  conditions  are  favorable. 

7.  Financial  budget. — Business  men  have  been 
classified  as  the  hard  workers  and  the  hard  thinkers. 
The  hard  worker  plunges  in  and  does  a  thing  and 
then  figures  out  afterward  how  it  might  have  been 
done  better.  The  hard  thinker,  on  the  other  hand, 
plans  first  how  a  thing  should  be  done  and  then  works 
according  to  the  plan.  The  hard  worker  frequently 
has  a  moderate  success  because  he  accomplishes  so 
much  by  hard  work  during  long  hours  that  it  makes 
up  for  his  lack  or  insufficiency  of  planning.  The 
hard  thinker  gains  profit  from  every  bit  of  his  hard 
work  because  he  has  made  no  blundering  mistakes 
that  drag  down  his  net  results.  This  type  of  business 
man  in  the  retail  store  makes  up  an  operating  financial 
budget  at  the  beginning  of  each  season,  and  if  he  has 
the  required  merchandising  ability  and  works  hard 
enough,  he  will  find  it  possible  to  merchandise  his  store 
in  advance  according  to  the  plan  he  himself  has  made 
rather  than  to  merchandise  it  from  day  to  day  accord- 
ing to  guesswork  and  snap  decisions. 

On  the  page  following  is  a  summary  of  a  budget 
for  a  general  store  in  a  city  of  twenty  thousand, 
with  a  total  trading  population,  including  suburbs 
and  farming  sections,  of  about  thirty-five  tliousaud. 
This  summary  is  made  uj)  from  tlie  detailed  budgets 


206  RETAIL  MERCHANDISING 

of  each  selling  department  of  the  store.  In  the  de- 
partmental budgets,  purchase  limits  are  set  by 
months  of  the  season,  as  are  also  limits  of  sales  and 
expenses.  To  the  records  of  each  month,  the  actual 
records  of  the  corresponding  month  of  the  preceding 
year  are  added.  Allowance  is  here  made  for  special 
sales  events  in  any  department,  such  as  a  possible 
March  houseware  sale  in  the  house-furnishing  depart- 
ment. Expenses  for  each  department  are  also  sub- 
divided to  show  direct  sales  expense,  department  and 
general  overhead,  allowance  for  advertising,  displays, 
delivery  and  the  like — every  kind  of  expense  is  divided 
among  the  months  of  the  season.  The  same  is  true  of 
the  non-selling  departments,  for  they  also  have  finan- 
cial operating  budgets.  The  general  financial  budget 
is  a  summary  of  all  departmental  budgets. 

SUMMARY  OF  FINANCIAL  BUDGET 

FOR 

A  GENERAL  STORE 

(Depaetmentized) 

Spring  Season  of  1917 

Location — Middle  West  City  of  20,000  Population;  Trading  Population  of 

35,000 

Total  expected  sales  for  6  months,  at  retail $300,000 

Capital  investment  in  common  stock    (dividends  declared  semi- 
annually at  end  of  each  season) 100,000 

Average  merchandise  investment  at  cost 75,000 

Fixtures     15,000 

Cash  for  working  assets 10,000 

Other  funds  as  required  from  time  to  time  obtained  of  bankers. 

Mark-up  (gross  profit)  desired,  at  retail 25% 

Stock  at  beginning  of  period  at  cost  (market  value) 75,000 

Stock  at  beginning  of  period  at  retail  (market  value) 100,000 

Purchases  during  the  six-month  period,  at  cost 150,000 

Purchases  during  the  six-month  period,  at  retail 200,000 

Stock  desired  at  end  of  period,  at  retail 75,000 


ORGANIZING  AND  FINANCING  207 

Maximum  stock  limit  during  period,  at  retail 125,000 

Average  stock  during  period,  at  retail 100,000 

Gross  sales,  at  retail -200,000 

Gross  profits,  at  retail 50,000 

Per  cent  gross  profit,  at  retail i25% 

Expected  salarj^  expense 13,350 

Other  expenses" 26,950 

Total  expenses 39,300 

Per  cent  of  expenses  on  sales  at  retail 20.15% 

Net  profits  on  sales 9,700 

Per  cent  of  net  profit  on  sales 4.85% 

Cash   discounts   taken 6,500 

Interest  paid  on  money  borrowed  at  the  bank  to  discount  bills 
and  to  take  care  of  extra  financial  requirements  beyond 
capital  invested  in  business.  (An  average  of  $25,000  dur- 
ing the  six-month  period,  at  6%  ) '<'50 

Xet  gain  on  discounts  over  interest  paid 5,750 

Total  profits  earned  by  store  during  period 16,450 

Reserve  set  aside  for  depreciation  on  fixtures,  losses  on  collections 

and  for  surplus  fund 11,450 

Net  earning  available  for  dividends  to  stockholders 5,000 

Rate  of  dividend  to  be  declared 5%  for  6  months 

8.  Counting  room. — The  cash  is  received  and  han- 
dled by  the  cashiers.  Their  duties  are  considered  a 
part  of  the  general  clerical  work  of  the  store.  The 
financing  of  the  store  is  carried  on  thru  the  counting 
room.  Here  the  funds  are  received  from  the  cash- 
iers and  are  deposited  in  the  bank.  Payrolls  as  well 
as  all  bills  for  merchandise  and  supplies  are  here  made 
up  and  paid. 

The  head  of  the  counting  room  is  generally  the 
president  of  the  business. 

The  treasurer  knows  from  purchase  records  the 
total  amount  due  for  payment  of  merchandise  bought 
from  day  to  day,  and  can,  therefore,  plan  the  distribu- 
tion of  his  funds  so  as  to  pay  the  bills  and  at  the  same 
time  take  advantage  of  cash  discounts.  He  works 
with  the  buyers  and  the  merchandise  manager,  if  there 
is  one,  to  arrange  purchases  so  as  to  make  payment 


208  RETAIL  MERCHANDISING 

dates  as  convenient  as  possible  from  a  financial  stand- 
point. 

Since  the  credit  and  collection  departments  involve 
financial  functions,  they  should  be  under  the  super- 
vision of  the  person  in  charge  of  the  financial  division. 

REVIEW 

Is  functional  management  applicable  in  the  conduct  of  a  re- 
tail store? 

II 

Describe  the   organization  chart  given    as   an   illustration. 

Why  is  it  easier  to  finance  a  retail  store  than  a  wholesale  estab- 
lishment? 

What  are  the  salient  points  of  the  budget  given  on  pages  206 
and  207? 


CHAPTER  IV 

OPERATING  AND  RECORDING  THE  BUSINESS 

1.  Necessity  for  operating  function. — After  plan- 
ning the  general  organization  and  financing  of  the 
business,  the  next  task  is  to  arrange  for  the  store 
building  and  equipment,  the  layout  of  the  different 
departments  and  to  engage  the  sales  and  clerical 
force  needed  to  sell  and  deliver  the  goods.  The  buy- 
ing will  be  handled  by  the  merchandise  organization, 
and  the  records  by  the  records  manager  in  his  depart- 
ment. The  remaining  employes,  consisting  of  sales- 
people and  all  the  other  employes  not  directly  con- 
nected with  financing,  buying  and  records  are  in- 
cluded in  the  operating  division  of  the  business.  In 
the  average  store,  fully  ninety  per  cent  of  the  total 
number  of  employes  are  in  this  division. 

2,  Superintendent. — The  work  of  organizing  and 
supervising  this  force,  as  well  as  taking  care  of  the 
building  and  equipment,  is  the  task  of  the  superin- 
tendent. His  relation  to  the  business  as  a  whole  will 
be  noticed  by  referring  to  the  organization  chart  fac- 
ing page  203.  In  many  stores,  he  has  general  super- 
vision over  all  clerical  employes  even  tho  they  may  be 
assigned  to  duty  in  the  financial,  buying  or  record- 
ing divisions.     He  is  responsible  for  tlie  training  of 

209 


210  RETAIL  MERCHANDISING 

employes  and  for  the  physical  conditions  under  which 
they  work.  He  also  develops  the  internal  store  poli- 
cies and  rules,  builds  up  the  store  system  and  is  re- 
sponsible for  its  successful  operation. 

3.  Choosing  the  store  site. — A  choice  location  in  the 
best  part  of  the  retail  center  is  required  for  a  general 
store  as  it  is  for  a  department  store,  if  it  caters  to 
quahty  trade.  If  the  appeal  is  one  of  price,  a  cheaper 
location  is  more  suitable.  A  definite  limit  for  rent 
should  be  set,  proportional  to  the  expected  volume  of 
business,  and  then  the  best  location  at  the  price  should 
be  obtained.  In  a  city,  the  question  of  transportation 
facilities  is  a  serious  factor.  In  a  rural  section,  acces- 
sibility to  suburban  trolleys  is  important.  A  strong 
merchandising  organization  never  hesitates  to  locate 
next  to  another  store.  Competition  is  often  of  an  ad- 
vantage. It  brings  all  shoppers  to  a  given  locality 
and  the  best  merchant  gets  the  cream  of  the  business. 

4.  Store  huilding. — All  physical  equipment  has  its 
practical  utility  and  its  psychological  effect.  A  cer- 
tain type  of  store  building  or  store  front  is  advisable 
primarily  on  account  of  its  suggestive  value.  For 
example,  a  store  which  occupies  the  first  floor  of  a 
big  building  among  other  smaller  buildings,  impresses 
the  public  as  being  a  big  store;  whereas  the  same 
amount  of  floor  space  in  a  building  by  itself  would 
seem  small  in  comparison,  especially  if  the  floor  space 
were  spread  over  two  stories  as  against  one  story  for 
the  store  in  the  big  building.  The  impression  of  big- 
ness may  not  always  be  advantageous;  but  where  it 


OPERATING  AND  RECORDING  211 

is,  a  big  building  might  be  desirable,  even  tho  the 
upper  stories  are  occupied  by  other  tenants.  In  a 
big  building,  the  opportunity  to  get  additional  space 
as  the  growth  of  business  may  require,  is  usually  open. 

5.  Store  front. — There  is  both  a  utilitarian  and 
a  psychological  value  to  the  store  front.  If  it  is 
old-fashioned  and  unattractive,  prospective  custom- 
ers are  disposed  to  think  that  the  stock  of  merchan- 
dise must  likewise  be  out-of-date  and  the  service  poor. 
To  spend  money  in  remodeling  an  old  store  front  is 
usually  a  good  investment.  When  one  general  mer- 
chant was  asked  the  reason  for  his  success,  he  pointed 
to  a  freshly-painted  store  front  and  said,  "A  couple  of 
gallons  of  good  paint  twice  a  year — that's  the  reason." 
He  meant,  of  course,  that  a  clean,  bright  store  front  all 
the  year  round  typified  the  cause  of  his  success. 
Many  people  judge  the  character  of  the  store  by  the 
appearance  of  its  front.  Therefore,  it  should  be  mod- 
eled to  give  as  nearly  as  possible  the  impression  the 
merchant  desires  his  store  to  make  in  the  public  mind. 

6.  Heat,  light  and  ventilation. — Proper  light  and 
heat  should  be  figured  out  scientifically.  The  lo- 
cal electric  light  company  will  gladly  give  the  services 
of  one  of  their  engineers  for  the  purpose  of  collabor- 
ating with  the  store  superintendent  in  working  out 
the  proper  illumination  of  the  store.  This  problem 
is  too  important  to  be  solved  by  guesswork,  and  there- 
fore the  wise  store  superintendent  should  secure  all 
the  expert  assistance  he  can  command.  Various  or- 
ganizations, such  as  the  Extension  Division  of  the 


212  RETAIL  MERCHANDISING 

University  of  Iowa,  have  prepared  excellent  pam- 
phlets on  the  subject,  for  the  use  of  those  who  cannot 
readily  get  the  assistance  of  an  engineer  experienced 
in  store  lighting.  The  problems  of  heating  and  ven- 
tilation should  also  be  given  like  careful  attention. 

7.  Store  equipment. — The  equipment  of  the  store 
has  also  both  utility  and  suggestive  value.  There  is 
what  might  be  called  service  equipment  as  contrasted 
with  selling  equipment.  By  service  equipment  is 
meant  that  which  serves  the  convenience  of  customers 
or  employes  but  is  not  used  in  the  operation  of  the 
business.  It  is  often  a  difficult  question  to  determine 
how  much  service  equipment,  such  as  rest  rooms,  hos- 
pital rooms,  telephone  booths,  and  so  on  should  be 
provided.  Such  equipment  tends  to  bring  women 
into  the  store  and  keep  them  there  for  longer  periods. 
For  this  reason  large  stores  provide  restaurants,  rest 
rooms  and  entertainment  in  order  that  shoppers  may 
staj^  the  greater  part  of  the  day  and  shop  without  be- 
coming fatigued.  Such  stores  claim  that  service  of 
this  kind  increases  the  amount  of  sales  per  person  as 
well  as  the  number  of  customers,  so  that  selling  ex- 
penses are  reduced.  There  is  probably  much  truth 
in  this  contention,  since  in  retailing,  sales  are  made 
by  indirect  means  rather  than  hj  the  direct  sales 
efforts  of  the  clerks  alone. 

It  is  easier  to  decide  on  the  installation  of  selling 
equipment.  This  will  be  governed  by  the  size  and 
type  of  the  store  as  well  as  by  the  financial  strength 
of  the  organization.     For  instance,  a  cash  register  is 


OPERATING  AND  RECORDING  213 

generally  recognized  as  necessary  in  any  kind  of  a 
store.  Even  for  the  young  man  with  only  a  few  hun- 
dred dollars  with  which  to  start  a  neighborhood 
store,  it  is  a  necessary  piece  of  equipment.  It  would 
probably  pay  for  itself  from  the  start  for  reasons 
known  by  everj'^  merchant  today. 

8.  Standards  in  equipment. — The  merchant  should 
determine  the  general  standard  of  equipment  to  be 
used  in  his  store,  and  then  maintain  it.  Uniformity 
in  quality,  design  and  color  of  equipment  is  essen- 
tial. A  store  that  is  equipped  with  a  varied  assort- 
ment of  styles  in  shelving  and  show  cases  conveys 
a  confused  impression.  Uniformity  of  style  and  fin- 
ish of  fixtures  and  equipment  add  tone  to  any  store. 
To  secure  this  result  the  equipment  need  not  be 
expensive.  In  one  of  the  most  successful  chains  of 
stores  the  total  cost  of  standard  equipment  for  each 
store  is  less  than  a  thousand  dollars,  yet  it  is  as  attrac- 
tive and  as  satisfying  as  fixtures  costing  a  great  deal 
more. 

Few  stores  are  sufficiently  equipped  for  conven- 
ience. In  most  cases,  no  matter  how  well  planned  the 
fixtures  and  other  equipment  may  be  in  a  new  store, 
additions  and  changes  soon  become  desirable.  INIer- 
chants,  however,  are  inclined  to  let  temporary  incon- 
venience and  expense  of  improvement  postpone  the 
big  permanent  gain  in  convenience  and  jn-ofit.  In 
this  respect,  the  chain-store  systems  such  as  the 
United  Cigar  Stores  Company,  set  an  excellent  ex- 
ample of  convenience  in  equipment. 


214  RETAIL  MERCHANDISING 

Equipment  is  designed  to  protect  the  merchandise, 
to  aid  in  systematic  stockkeeping,  to  display  mer- 
chandise, and  to  make  a  favorable  impression  on 
customers.  Extra  expenditure  on  fixtures  for  pro- 
tecting perishable  goods,  or  goods  easily  soiled  or 
goods  of  great  value,  is  nearly  always  advisable  if  the 
line  is  a  permanent  part  of  the  stock.  The  modern 
cases  in  which  are  kept  stocks  of  men's  ready-to-wear 
clothing,  for  example,  pay  for  themselves  over  and 
over.  They  save  time  thru  systematic  stockkeeping, 
and  aid  in  selling  by  keeping  the  merchandise  in  per- 
fect condition. 

The  best  fixture  or  equipment  of  any  kind  is  the 
one  that  best  meets  the  four  purposes  just  mentioned, 
cost  considered.  Which  purpose  should  be  empha- 
sized in  case  all  of  them  cannot  be  attained,  or  in  case 
one  must  be  gained  at  the  expense  of  the  other — 
protection  interfering  with  display,  for  example — de- 
pends of  course  on  the  goods  and  conditions  peculiar 
to  each  store.  Inexpensive  waists  for  women  are  dis- 
played in  open  cases  where  they  may  be  readily  ex- 
amined by  the  chance  passer-by,  while  expensive 
waists  must  be  kept  in  glass  cases  or  in  stock  boxes. 
In  the  first  example  the  display  value  i^redominates, 
while  in  the  next  the  protective  value. 

9.  Organization  of  the  personnel. — Anyone  willing 
to  take  advice  and  with  plenty  of  funds  at  his 
disposal  can  organize  the  physical  equipment  of 
a  store.  He  has  only  to  study  other  stores,  consult 
with  the  experts  on  the  staff  of  manufacturers  of 


OPERATING  AND  RECORDING  215 

store  equipment  and  spend  the  money.  But  when  it 
comes  to  building  up  the  human  equipment  the  task 
is  not  so  easily  accomplished.  The  superintendent  of 
a  store  devotes  the  greater  portion  of  his  time  to  the 
selection  and  training  of  new  employes,  to  the  es- 
tablishing of  high  standards  for  old  employes  and 
to  the  general  building  up  of  the  human  machine. 
Special  attention  must  be  given  to  the  contributory 
factors  in  this  work  such  as  store  rules  and  policies, 
wages,  bonuses,  promotions,  transfers,  working  con- 
ditions and  the  like. 

10.  Employing  new  clerks. — In  every  store  of  any 
size,  the  superintendent  must  give  a  good  part  of  his 
time  to  employment  work.  Each  applicant  should  be 
checked  against  an  ideal  or  standard  set  for  the 
employment  work  in  each  department.  Mental  and 
ph^^sical  tests  are  frequently  added.  Too  much  at- 
tention cannot  be  given  to  this  work,  for  the  loss  thru 
"floaters"  and  those  who  fail,  is  much  greater  than 
the  expense  of  careful  selection  in  the  first  place. 
The  average  period  of  employment  in  general 
stores  usually  is  less  than  a  year,  yet  some  stores  have 
been  able  to  raise  the  average  to  two  or  three  years. 
If  the  statement  is  correct  that  the  average  expense 
of  engaging  a  new  clerk  and  training  the  clerk  up  to 
the  point  of  earning  his  or  her  salary  is  fifty  dollars, 
then  the  loss  from  turning  over  the  whole  force  more 
than  once  a  year  is  a  very  heavy  drain  on  the  busi- 
ness. 

11.  Training   and   welfare   work. — The   work    of 


216  RETAIL  MERCHANDISING 

training  the  new  employes  is  considered  in  a  later 
chapter.  The  welfare  work  must  be  such  as  to  aid 
the  employe  in  doing  the  best  for  himself  and  for  the 
firm.  It  begins  with  proper  working  conditions. 
There  is  no  reason,  for  instance,  why  stools  or  chairs 
should  not  be  provided  for  salespeople  in  order  that 
they  may  rest  when  not  occupied  with  selling  or  stock- 
keeping.  But  it  must  go  further.  In  large  stores 
lunches  are  furnished  and  a  place  is  provided  for  rest 
or  recreation  during  the  noon  hour.  Employes  often 
assume  an  obligation  to  cooperate  in  recreational  and 
social  activities  outside  of  office  hours.  Assistance  in 
case  of  illness  or  need  also  represents  an  opportunity 
in  the  way  of  welfare  work.  In  any  case  such  work 
should  not  be  patronizing,  but  should  always  be  a 
part  of  the  effort  of  the  employer  to  cooperate  with, 
and  thus  help  his  employes,  in  order  that  both  may 
work  together  to  better  advantage  to  secure  personal 
as  well  as  business  benefits.  The  small  merchant  can 
do  better  welfare  work  than  his  large  competitor,  be- 
cause he  is  close  to  the  employe  and  knows  both  the 
opportunity  and  the  best  method  to  secure  desired 
results.  The  less  splurge  and  the  more  quiet,  sin- 
cere interest  and  cooperation,  the  greater  the  value 
of  welfare  work. 

12.  Wage  systems. — We  all  work  for  wages;  and 
we  all  think  we  are  entitled  to  more  than  we  get, 
whether  it  comes  to  us  indirectly  in  the  form  of  profits 
as  proprietors  of  our  own  business  or  directly  as  em- 
ployes of  another.     A  great  variety  of  wage  systems 


OPERATING  AND  RECORDING  217 

have  been  tried  by  retailers  but  all  are  dependent  on 
one  principle.     The  wage  must  be  proportionate  to 
the  profit  accruing  to  the  proprietor  from  the  work  of  ■ 
the  wage-earners. 

In  order  to  get  at  this  scientifically,  it  is  necessary 
to  find  the  per  cent  of  profit  from  the  sale  of  goods 
handled  by  the  clerk  in  question,  and  then  the  profit 
to  the  store  can  be  fio-ured.  Probably  the  best  waffc 
system  is  one  in  which  a  beginning  salary  based  on  the 
profit  is  set  in  each  line.  In  one  store  in  which  the 
minimum  wage  is  $8.00  weekly,  except  for  the  junior 
employes  such  as  messenger  boj^s  and  stock  girls,  the 
beginning  wage  in  the  millinery  department  is  $0.00 
a  week  and  the  clerk  is  expected  to  sell  at  least  $300 
worth  of  goods  a  week.  For  all  sales  over  this 
amount  a  commission  of  two  per  cent  is  paid,  while 
the  clerk  remains  on  the  salary  of  $9.00.  When  the 
clerk's  salary  is  increased  to  $10.00  the  sales  quota 
is  raised  to  $350,  while  the  commission  for  all  sales 
beyond  the  increased  quota  remains  the  same,  two  per 
cent. 

Various  quotas  and  in  fact  modifications  of  the  sys- 
tem are  made  in  other  lines.  In  men's  clothing,  for 
instance,  a  straight  salary  is  paid  weekly  and  at  the 
end  of  each  season  each  clerk's  sales  are  totaled  and 
commissions  are  figured  at  five  per  cent.  In  depart- 
ments like  bargain  basements,  the  commission  is  usu- 
ally 2/4  to  3/4  per  cent  with  settlements  weekly  in- 
stead of  at  the  end  of  the  season.  This  is  due  to  the 
difference  in  the  type  of  salespeople.     The  salesmen 

XIX— 16 


218  RETAIL  MERCHANDISING 

in  the  men's  clothing  department  will  work  for  a 
longer  period  under  the  impetus  of  a  bonus  system 
than  the  young  women  in  the  basement. 

The  object  of  a  bonus  and  premium  system  of  wage 
payment  should  always  be  to  increase  salaries  to  each 
individual  without  increasing  the  percentage  of  sales 
expense.  In  the  working  of  the  system  both  the  em- 
ployer and  the  employe  strive  to  improve  the  store 
efficiency  and  both  share  in  the  profit ;  the  one  in  in- 
creased salary  and  the  other  in  increased  volume  of 
business  with  lower  pro  rata  expense. 

Salary  advances  should  be  automatic.  The  unex- 
pected increase  is  always  twice  as  effective  as  the  one 
asked  for.  But  the  salary  is  not  the  only  reward. 
Every  store  superintendent  should  promote  his  peo- 
ple as  rapidly  as  possible  to  more  responsible  work. 
And  for  this  purpose  he  should  have  a  definite  line  of 
promotion  for  each  employe.  The  better  job  ahead, 
to  be  secured  when  it  is  earned,  is  the  greatest  possible 
stimulus  to  good  work.  The  record  of  each  clerk's 
efficiency  is  kept  by  the  superintendent,  and  also  the 
record  of  his  or  her  educational  training. 

13.  Floor  and  aisle  managers. — On  each  floor  of 
a  large  store  the  superintendent  has  an  immediate 
assistant  in  the  floor  manager,  and  under  him  are 
several  aisle  managers  or  floorwalkers.  They  super- 
vise the  sales  force,  settle  minor  complaints,  direct 
customers,  take  care  of  their  section  of  the  building, 
follow  up  promises  of  future  delivery,  countersign 
with  the  buyer  returns  for  credit  or  refund,  and  gen- 


OPERATING  AND  RECORDING  219 

erally  perform  the  work  of  a  superintendent  for  their 
immediate  section  of  the  store. 

14.  Inspectors  and  wrappers. — In  large  stores  it  is 
necessary  to  follow  out  unit  operations  and  this  work 
is  done  by  the  inspectors  and  wrappers.  The  former 
check  the  goods  to  see  if  the  quantity  is  correct,  com- 
pare it  with  the  sales  slip,  receive  the  cash  if  it  is  a  cash 
transaction  or  send  the  sales  shp  to  the  credit  depart- 
ment if  it  is  a  charge  sale.  Then,  if  there  is  a  sepa- 
rate person  to  wrap  the  goods,  the  inspector  passes  it 
on  for  wrapping.  In  large  departments  there  may 
be  inspector,  cashier  and  wrapper,  while  in  a  small 
one  all  three  functions  may  be  combined  in  one. 
Again,  in  the  small  general  store  all  three  operations 
may  be  dispensed  with,  the  salesperson  doing  every- 
thing. There  are  advantages  in  both  the  inspector 
and  the  clerk-wrapping  system.  At  the  time  of  writ- 
ing, the  tendency  seems  toward  the  latter  system  be- 
cause of  the  delay  when  goods  must  pass  thru  so  many 
hands  after  being  sold.  The  whole  problem  of  re- 
cording and  delivering  merchandise  is  a  troublesome 
one.  The  average  sales  clerk  spends  too  much  time 
in  making  out  the  sales  slip  and  doing  other  non-sell- 
ing work.  Some  day,  perhaps,  someone  will  invent  a 
system  which  will  be  simpler  and  yet  carry  with  it  the 
same  advantages  for  recording  the  sale  correctly.  It 
is  one  of  the  most  serious  problems  in  retailing  today. 

15.  Delivery  service. — Much  money  can  be  saved 
by  careful  organization  of  the  delivery  service,  when 
deliveries  are  made.     Definite  schedules  and  routes 


220  RETAIL  MERCHANDISING 

are  possible  even  in  the  small  store  with  a  single  de- 
livery wagon.  If  the  customers  of  a  store  understand 
a  merchant's  schedule  of  delivery  and  know  that  he 
will  maintain  it,  they  will  adapt  their  requests  and  ex- 
pectations to  it.  The  merchant  himself  often  makes 
a  mistake  when  he  accedes  to  an  unreasonable  request 
for  delivery. 

Deliveries  are  always  expensive  unless  they  are 
thoroly  systematized.  The  more  frequent  they  are 
from  any  one  store,  the  easier  it  is  to  establish  an  eco- 
nomical system  which  will  keep  the  cost  of  delivery 
per  item  within  reasonable  bounds.  This  advantage 
is  multiplied  in  a  cooperative  delivery  plan;  but  such 
plans  are  successful  only  when  conducted  under  effi- 
cient management.  The  plan  is,  however,  economi- 
cally sound,  and  whenever  a  cooperative  system  has 
failed  it  has  usually  been  due  to  poor  management. 

16.  Records  manager. — As  a  store  increases  in 
size  it  is  necessary  to  put  more  authority  on  individu- 
als. From  such  a  development  an  official  kno^vn  as 
the  records  man  or  the  office  manager  has  arisen. 
He  has  charge  of  bookkeeping,  auditing,  statistical 
work,  cost  finding  and  everything  pertaining  to  the 
records  of  the  business.  In  a  small  store  he  keeps  the 
stock  records.  Keeping  track  of  purchases  and  of 
sales  to  customers  is  a  simple  matter,  calling  for  only 
a  knowledge  of  elementary  bookkeeping.  The  work 
of  auditing  the  sales  slips  to  verify  prices  and  exten- 
sions, does  not  call  for  special  treatment.  But  the 
task  of  keeping  track  of  the  various  departmental 


OPERATING  AND  RECORDING  221 

purchases,  expenses  and  sales  in  order  to  show  the 
real  progress  and  present  conditions  of  the  store,  is 
more  difficult. 

17.  Retail  accounting. — One  of  the  best  ways  to 
get  a  clear  understanding  of  a  retail  business  is  to 
analyze  its  expenses.  A  merchant  may  secure  val- 
uable hints  on  the  subject  of  retail  accounting  from 
many  sources.  For  instance,  the  Federal  Trade  Com- 
mission has  published  a  pamphlet  entitled,  "A  System 
of  Accounts  for  Retail  INIerchants,"  which  contains 
some  very  valuable  suggestions. 

A  study  of  these  various  trade  accounting  systems 
reveals  one  common  trait — simplicity.  Experience 
has  proved  that  too  many  complications,  with  the  re- 
sulting waste  of  time,  will  often  bring  costs  so  high 
as  to  defeat  the  purposes  of  a  carefully  worked  out 
accounting  system.  The  merchant  wishes  to  tell  at 
a  glance  whether  things  are  going  as  they  should 
without  wading  thru  an  involved  mass  of  figures. 
No  system  which  requires  practically  all  a  man's  time 
can  be  called  successful,  because  the  cost  of  that  time 
will  often  outweigh  any  economies  which  may  come 
from  systematized  records. 

There  is  a  very  close  relationship  between  retail  ac- 
counting and  retail  stockkeeping,  particularly  where 
a  perpetual  inventory  system  is  in  use.  In  fact,  in 
the  majority  of  cases,  the  perpetual  inventory  sys- 
tem depends  directly  upon  the  accounting  system  for 
its  success.  Therefore,  where  the  foundation — ac- 
counting— is  weak,  it  follows  that  the  whole  struc- 


222  RETAIL  MERCHANDISING 

ture  of  the  stockkeeping  plan  is  correspondingly  weak. 
This  all  goes  to  prove  that  the  accounting  system  is 
important  not  only  for  its  own  sake,  but  also  for  the 
sake  of  one  of  the  most  important  elements  of  suc- 
cessful retailing — a  good  system  of  stockkeeping. 

REVIEW 

What  do  you  consider  to  be  the  duties  of  a  superintendent  ? 

Why  is  an  attractive  store  front  a  good  investment.'' 

Discuss  service  equipment  and  store  equipment. 

For  what  purposes  is  equipment  designed? 

How  are  wage  systems  determined?  Do  you  believe  in  bonus 
and  premium  systems  ?     Explain  your  position. 

What  is  the  value  of  an  adequate  cost  system  in  retail  mer- 
chandising? 

In  what  way  does  retail  accounting  contribute  to  the  success 
of  the  business? 


CHAPTER  V 

TRAINING  THE  SELLING  FORCE 

1.  "Tlie  salesman  is  the  store.'' — When  you  stop 
to  consider  that  there  are  approximately  fifty  thou- 
sand salespeople  in  the  department  stores  of  New 
York  City  alone,  it  is  evident  what  possibilities  there 
are  in  the  training  of  the  young  man  or  young  woman 
behind  the  counter  to  represent  more  effectively  and 
more  truly  the  merchants  themselves.  Add  to  New 
York  all  the  cities  of  the  nation  and  then  all  the  re- 
tail selling  organizations  of  whatever  nature,  from 
the  general  store  at  the  countrj^  crossroads  to  the 
chain  organizations  with  their  thousands  of  stores,  and 
you  get  some  idea  of  the  hundreds  of  thousands  of  peo- 
ple engaged  in  retail  selling  in  the  United  States. 
They  make  or  break  the  store ;  yet  how  strange  that  the 
opportunity  to  help  them  "make"  the  store  has  been 
so  long  overlooked,  or  at  best  handled  in  such  desul- 
tory fashion  by  the  great  majority  of  retailers. 

True,  there  have  been  noted  exceptions,  particularly 
during  the  last  decade  or  two;  and  true,  also,  in 
every  such  case  striking  success  has  followed.  One 
of  the  most  evident  examples  is  that  of  the  United 
Cigar  Stores  Company.  Everyone  knows  how  their 
business  has  been  built  in  a  decade  into  one  reaching 
practically  to  every  large  city  in  the  United  States. 

223 


2M  RETAIL  MERCHANDISING 

More  than  anything  else  their  system  of  training  the 
salesmen  was  responsible  for  this  success.  That  the 
same  methods  are  fundamental  to  all  retail  selling  and 
just  as  applicable  to  one  as  to  another,  is  evidenced 
by  the  fact  that  the  United  Cigar  Store  system  of 
training  retail  salesmen  and  similar  systems  in  large 
department  stores,  are  being  used  with  equal  advan- 
tage by  small  stores. 

2.  Explaining  the  store  policy. — The  training  be- 
gins immediately  after  the  details  of  employment  have 
been  arranged.  At  that  time,  the  educational  record 
card  is  made  out,  showing  all  the  facts ;  such  as  name 
and  address,  education,  previous  store  experience,  po- 
sitions held  and  reasons  for  leaving.  In  addition, 
space  is  left  to  enter  the  new  employe's  records  in  the 
educational  course. 

A  group  of  new  salespeople  is  collected  in  one  cor- 
ner of  the  store  during  a  dull  period,  or  after  the  store 
closes,  by  the  person  in  charge  of  the  educational  work 
or  by  one  of  his  assistants,  and  the  general  manager 
gives  a  lecture  on  the  history  and  policy  of  the  store. 
Here  is  the  first  big  opportunity;  for  the  successful 
salesman  must  be  first  of  all  an  enthusiastic  believer  in 
the  store  of  which  he  is  a  part  and  in  the  merchandise 
he  offers  for  sale,  as  well  as  in  that  hard-to-define 
something  which  we  call  the  policy  of  the  company. 
One  of  the  notable  recent  department  store  failures 
was  said  to  be  due  largely  to  the  fact  that  the  selling 
force  had  lost  faith  in  their  own  store  and  literally 
drove  trade  away. 


THE  SELLING  FORCE  225 

3.  Teaching  the  store  system. — Having  become 
thoroly  imbued  with  the  spirit  of  the  store  and  im- 
pressed with  the  importance  of  courtesy  and  real  serv- 
ice to  customers  as  invited  guests,  which  they  really 
are,  the  new  sales  clerk  is  ready  to  learn  the  routine 
system.  The  superintendent  of  the  store  is  now  the 
instructor.  He  takes  up  the  sales  slip  or  "schedule," 
as  it  is  frequently  called,  and  explains  how  it  is  made 
out  under  varying  conditions.  Then,  as  would  be  ex- 
pected, the  new  clerk  is  quizzed  to  test  his  ability  to 
follow  instructions.  The  same  methods  apply  to  the 
making  out  of  the  various  other  forms,  such  as  "hold 
tickets,"  "work  tickets,"  "transfers,"  "special  delivery 
slips"  and  the  like.  But  great  care  must  be  exercised 
to  avoid  taking  up  too  much  at  one  meeting,  for  it  is 
very  easy  to  confuse  the  new  clerk  with  a  mass  of 
forms.  For  that  reason,  instruction  should  be  spread 
over  several  meetings  on  different  dates.  A  stereop- 
ticon,  especially  of  the  reflecting  type,  has  been  found 
to  be  almost  indispensable  at  Wanamaker's  in  in- 
structing large  groups  in  the  store  system. 

Instruction  is  also  given  in  the  care  of  stock  and 
in  various  other  details  of  the  salesperson's  duties. 
If,  however,  they  are  special  employes  engaged  for 
a  single  sale,  the  whole  course  in  the  store  system  must 
be  condensed  into  one  meeting.  A  store  manual  is 
provided  for  each  salesperson  and  becomes  a  part 
of  his  permanent  equipment. 

In  many  stores  the  lower  prices  in  the  basement 
necessitate  simpler  systems  and  likewise  a  difl'erent 


226  RETAIL  MERCHANDISING 

and  briefer  course  of  training  in  the  store  system. 
Generally  this  work  can  be  condensed  into  one  or 
two  meetings,  which  are  preceded  also  by  a  special 
discussion  of  the  basement  pohcy.  Tests  are  required 
here  as  in  the  main  selling  actions.  A  special  base- 
ment manual  is  also  provided. 

4.  Begitming  actual  selling. — Then  follow  lessons 
in  salesmanship  in  which  the  various  steps  in  the  sale, 
as  illustrated  in  the  chart,  are  carefully  noted.  The 
new  recruit  can  begin  selling  at  this  time  under  the 
guidance  of  an  experienced  salesperson.  At  this  time 
a  complete  record  for  the  first  year  will  be  started. 
A  form  is  provided  on  which  a  record  of  errors  is 
maintained — every  error  of  the  new  employe  is  re- 
ported to  the  superintendent  and  there  taken  up  in 
person  with  the  salesman.  In  some  stores,  as  for  in- 
stance that  of  Stix,  Baer  and  Fuller  Company,  of 
St.  Louis,  a  premium  in  the  form  of  a  half  holiday 
bi-monthly  is  given  those  who  keep  do^vn  their  errors 
to  a  certain  minimum. 

Tn  addition  to  this,  the  staff  of  the  educational  de- 
partment includes  a  number  of  "shoppers"  who  visit 
the  new  salespeople  at  their  work  and  watch  them  sell, 
in  order  later  to  offer  suggestions  for  improvement  as 
well  as  to  compliment  them  on  their  good  work.  At 
Strawbridge  and  Clothier's,  in  Philadelphia,  a  special 
attempt  is  made  to  clear  their  conversation  of  errors 
of  speech  in  addition  to  training  them  in  policy,  sys- 


227 

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idled, 
trd  of 
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edu- 
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arded 
sales- 


THE  STEPS  IN  THE  SALE 

Prepared  by  Mh.  James  W.  Fish,  Manager  of  the  Training  School  for  Teachers  of  Retail  Selling  maintained  by  the  Dry  Oooda  Economist. 


-  THE  STEPS  SUMMARIZED 
STEPS  IN  THE  SALE 

I    AttractiDg  Attt-ntioQ   ^0  per  o 

1 1     Arousing  Interest   20  per  d 

III  Creating  Desire   15  per  d 

IV  Closing  the  Sale  20  per  c 

V     Introducing  Other  Goods  ...  10  per  c 

VI    Securing  Good  Will IS  per  c 

100  per  CI 


THE  STEPS  ANALYZED 


ATTRACTING  ATTENTION 
Total  -JO  Pointt 


Alertness,    watchfulness    

Discontinuing  other  work   . . . . 

Rapidity  of  advance 

Point  at  which  customer  is  m( 

ATTITUDE 

Showing  recognition 

Sliowing  expectancy  and  defei 

Appearing  energetic    

Self-confident  bearing  

Pleasant  . . 
Expectant 

Unexpected  service 

Catch  customer's  first  words  , 

Courteous    , 

Suited  to  customer  

Offering  services  immediately 
Using  customer's  name  

Audible,  distinct    

Sincere    

Rhythmical    

Suited  to  customer 

Total    


AROUSING  INTEREST 
Total  20  Pointi 


Definite  information   3 

Most  vital  selling  point 2 

Positive  statement 1 

Referring  to  purpose  of  purchase  1 

Promptnes 
Bringing  goods  to  ( 

Placing  goods  in  reach  2 

Displaying  to   best   advantage..  4 

Removal    of    objectionable    fea- 

Handling  to  enhance  value  1 

Showing  right  goods   2 

(Noticing  implied  preference) 

Total    20 


CREATING  DESIRE 
Total  15  Points 


Adapting  to  customers'  actions 
Supplying  new  ideas  as  needed 
Answering  questions  readily  . . . 

Anticipating  objections    

Using  most  vital  selling  points  . 

Citing  personal  experience 

Using    evidence    of    other    pur- 
chases or  authorities    .... 

Getting  customer  to  agree  


Showing  right  quantities    

Displaying  to  best  advantage 
Showing  points  of  superiority. 

Appealing  to  the  senses  

Comparison  with  other  goods . . 

Total    


CLOSING  THE  SALE 
Total  20  Pointa 


Recognizing  best  time  to  close..  5 

Finding  reasons  for  delay 3 

Overcoming    expressed    objcc- 

Referring  to  customers'  ap- 
proval    1 

Showing  advantage  of  immedi- 
ate buying 9 

Suggesting  that  decision  is  mode  1 

Getting  customers'  consent 1 

Eliminating  other  goods  1 

Overcoming  expressed  objec- 
tions     2 

Demonstrating  approval  merits     1 
Suggesting      that      decision       is 

Total     90 


Total  10  Pointt 

Allied  lines  

In  own  department   

In  other  departments   

Inferred  preference   ...... 

Advertised  articles  

New  goods    

Service  instead  of  selling  . 
Suggesting  further  wants  . 

Tone  of  voice  

Suggesting  future  purchas* 

Total  


Total  15  Poin(» 

By  prompt  service   1 

By  attentlveness    I 

By  courtesy   1 

By  merchandise  knowledge    1 

By  unexpected  service    S 

By  continued  interest    4 

By  expression  of  gratitude   ....  9 

By  invitation  to  call  again    1 

By  invitation  to  take  advantage 

of  special  service  features  ...  I 
By  accompanying  to  department 

limits  on  departure 1 

Total  15 


K 


/^ 


THE  SELLING  FORCE  227 

tern  and  salesmanship.  Likewise  training  in  penman- 
ship is  frequently  necessary.  For  regular  people  the 
course  of  instruction  lasts  ten  weeks,  with  two  meet- 
ings a  week.  Basement  people,  and  those  engaged 
for  special  reasons  on  sales,  can  be  given  only  an  ab- 
breviated course. 

5.  Special  and  general  bulletins. — From  time  to 
time  special  bulletins,  called  by  one  store  "Efficiency 
Bulletins,"  are  necessary.  These  are  planned  for  the 
whole  store  force.  Sometimes  they  are  of  inspira- 
tional character  and  sometimes  educational. 

They  are  sent  to  the  floor  superintendent  or  aisle 
managers  in  each  section,  by  whom  they  are  handled. 
Each  salesperson  reads  them  and  signs,  as  a  record  of 
his  reading.  Later  the  subject  is  discussed  under  the 
floor  men's  leadership.  The  purpose  of  this  is  to  go 
into  more  detail  regarding  the  topics  under  discussion, 
and  incidentally  to  make  the  idea  "we  are  partners" 
more  than  so  much  verbiage.  The  floor  man  then 
sends  in  a  report  to  the  educational  office  to  record 
the  holding  of  the  meeting  held  and  the  results  ob- 
tained. 

6.  Studying  merchandise. — When  it  comes  to  the 
study  of  merchandise  itself,  the  task  must  devolve 
upon  the  person  in  charge  of  the  buying.  He  should 
hold  regular  conferences  with  his  sales  force  to  edu- 
cate them  thoroly  in  materials  and  methods  of  manu- 
facture. 

The  study  of  merchandise  is  coming  to  be  regarded 
as  equally  important  with  that  of  system  and  sales- 


328  RETAIL  MERCHANDISING 

manship  and  before  many  years  it  will  be  given  its 
full  share  of  prominence. 

7.  Lihraiies  and  rest  rooms. — Marshall  Field  and 
Company  give  over  a  large  part  of  their  tenth  floor 
to  the  exclusive  use  of  their  employes.  Two  reading 
rooms  are  provided.  Music  and  rest  rooms,  as  well 
as  various  other  welfare  features,  are  also  associated 
with  their  educational  work. 

8.  Junior  courses. — In  addition  to  such  a  course 
of  educational  training  for  the  selling  forces  of  today, 
a  similar  course  must  be  provided  for  training  of  the 
salesmen  and  saleswomen  of  tomorrow,  composed  now 
of  messenger  boys  and  cash  girls.  Every  large 
store  has  many  of  these  boys  and  girls  between 
fourteen  and  seventeen  or  eighteen  years  of  age. 
In  most  cases  they  left  school  at  the  first  legal  mo- 
ment, after  having  completed  at  best  only  the  gram- 
mar school,  and  in  a  large  percentage  of  cases  only  six 
or  seven  grades.  For  them  some  sort  of  continua- 
tion school  must  be  organized.  That  at  Wanamak- 
er's,  called  the  John  Wanamaker  Commercial  Insti- 
tute, may  be  considered  typical.  Regular  classroom 
instruction  under  competent  teachers  is  given  in  store 
time  and  occupies  about  four  hours  a  week.  The 
subjects  are  such  as  are  needed  to  continue  the  pre- 
vious education  from  the  point  where  it  was  dis- 
continued. Also  to  supplement  it  along  lines  most 
advantageous  to  one  starting  a  mercantile  career  by 
including  a  study  of  the  materials  and  methods  of 
merchandising.     The  boy  instinct  is  also  developed 


THE  SELLING  FORCE  229 

by  military  and  gymnastic  drills,  boy  scout  exercises 
and  the  like. 

9.  Cooperating  with  the  public  schools. — In  some 
cities  a  concerted  movement  has  been  started  to  get 
the  public  schools  of  the  city  to  give  some  of  this 
elementary  training  for  mercantile  life.  In  Winni- 
peg a  group  of  club  women  made  an  investigation  into 
the  conditions  surrounding  the  young  girls  working 
in  department  stores  of  the  city,  and  as  a  result  of 
it  offered  two  recommendations.  One  was  directed 
toward  better  living  conditions  by  encouraging  the 
opening  of  semi-philanthropic  boarding-houses  for 
working  girls  hving  away  from  home;  and  the  other, 
the  more  important,  urged  the  board  of  education 
of  the  city  to  revise  the  course  of  study  in  the  public 
schools,  and  to  add  special  continuation  courses  so  that 
these  girls  might  enter  store  work  with  a  better  chance 
to  earn  and  command  a  living  wage.  Several  Amer- 
ican cities,  particularly  Cincinnati  and  Milwaukee, 
have  added  continuation  schools  such  as  the  club 
women  of  Winnipeg  recommended.  Other  cities  are 
seriously  considering  it. 

10.  Training  the  non-selling  employes. — To  com- 
plete the  educational  system  of  a  department  store 
it  is  necessary  to  make  some  mention  of  the  training 
courses  in  the  non-seUing  departments.  There  are  the 
weekly  meetings  of  buyers  to  discuss  policies  and 
methods,  and  similarly  of  other  groups,  as  that  of  floor 
superintendents  and  aisle  managers.  In  fact,  even 
buyers  and  floor  men  must  complete  a  system  of  train- 


230  RETAIL  MERCHANDISING 

ing  similar  in  many  ways  to  that  required  of  a  new 
salesperson.  In  many  stores  the  educational  direc- 
tor plans  special  courses  for  office  and  delivery  em- 
ployes and  for  each  other  group  in  which  there  is  any 
considerable  nmnber. 

11.  Results  of  the  educational  work. — That  the 
whole  movement  is  proving  successful  is  evident  as 
much  from  the  demand  of  salespeople  of  many  years' 
experience  that  they  be  admitted  to  such  courses,  as 
from  the  tangible  results  themselves.  In  fact,  in  one 
Middle  West  store,  that  of  Rike-Kumler  Company, 
in  Dayton,  Ohio,  the  result  of  the  fii'st  course  of  in- 
struction was  so  striking  as  to  bring  the  following  re- 
mark from  the  educational  director:  "One  great 
step  which  has  been  obtained  is  the  awakened  attitude 
of  employes  toward  education.  At  first  the  older 
employes  asked  to  be  excused,  but  now  they  are  be- 
ginning to  realize  the  value  of  the  school  work." 

REVIEW 

What  principles  are  used  in  training  the  selling  force?  Name 
one  firm  which  was  a  leader  in  the  movement. 

What  is  the  first  lesson  given  to  department-store  new  em- 
ployes? How  is  the  spirit  of  the  store  as  well  as  its  system 
taught  ? 

Who  should  educate  the  salesman  in  materials,  manufacturing, 
etc.  ? 

What  subjects,  besides  selling  topics,  are  taught  in  the  com- 
mercial courses  in  department  stores  ?  What  is  some  of  the  wel- 
fare work?  Do  the  employes  approve  of  the  educational  and 
welfare  work? 

Discuss  a  typical  course  for  junior  employes. 

How  may  department-store  methods  be  adapted  to  other  re- 
tail selling  organizations?     Of  what  value  is  a  store  manual? 


CHAPTER  VI 

BUYING 

1.  Necessity  for  good  buying. — If  the  retailer  is 
to  serve  his  trade  well  he  must  be  first  of  all  a  good 
buyer.  In  order  to  continue  in  business  he  must  be 
able  to  meet  competition,  and  this  again  emphasizes 
the  need  for  good  buying.  With  the  constant  in- 
crease both  in  the  cost  of  merchandise  and  the  ex- 
pense of  doing  business,  the  margin  of  profit  is  low- 
ered. 

Profits  begin  with  successful  buying.  No  matter 
how  well  goods  are  displayed  and  advertised  and  how 
carefully  the  sales  force  is  built  up,  no  merchant  can 
overcome  the  handicap  of  poor  buying  sufficiently  to 
operate  his  business  under  present  conditions  with 
even  moderate  success. 

2.  Organization  for  buying. — In  a  small  store  and 
even  in  stores  doing  as  much  as  a  hundred  thou- 
sand dollars'  worth  or  more  of  business  annually,  the 
proprietor  is  the  buyer.  As  the  store  grows  larger, 
the  older  clerks  are  allowed  to  buy  less  important 
lines,  and  buyers  are  engaged  for  the  more  difficult 
ones;  while  in  the  city  department  stores  there  may 
be  a  hundred  or  more  buyers,  many  of  wlioni  have 
one  or  more  assistants.     In  the  very  largest  stores 

231 


232  RETAIL  MERCHANDISING 

the  proprietor  finds  it  impossible  even  to  supervise 
all  the  buying,  and  an  officer  known  as  a  merchandise 
manager  is  therefore  put  in  charge  of  all  buying  activi- 
ties. Whether  the  buying  is  for  a  country  cross- 
roads store  or  for  a  city  department  store,  it  must  be 
done  according  to  certain  well-established  principles 
if  it  is  to  be  well  done. 

3.  Basic  facts  for  merchandising. — The  analysis 
of  the  selling  field,  competition  and  the  determina- 
tion of  marketing  policies  were  discussed  in  an  earher 
chapter.  The  merchandiser  begins  the  planning  of 
his  work  with  a  study  of  these  facts.  From  time 
to  time  a  new  analysis  is  made  and  policies  are  re- 
vised to  suit  changing  conditions.  Salespeople  are 
required  to  hand  in  "want  slips"  showing  requests 
for  goods  not  carried  in  stock.  "Shoppers"  make  the 
rounds  of  competing  stores  to  keep  in  touch  with  com- 
petition and  to  get  ideas  for  improvement ;  slow-selling 
systems  warn  against  the  repetition  of  errors  in  buy- 
ing judgment.  Complaints  are  checked  up  by  the 
buying  organization  to  prevent  their  repetition  if  the 
fault  was  due  to  poor  buying.  Reasons  for  not  pur- 
chasing, as  given  to  the  salespeople,  are  turned  in 
daily.  Finally,  buyers  spend  a  large  part  of  their 
time  during  the  day  among  the  customers  of  the  store. 
When  they  are  on  buying  trips  it  is  as  necessary  for 
the  buyers  of  high-class  women's  wear  to  visit  the 
theaters  and  restaurants  to  see  what  well-dressed 
women  are  wearing,  as  it  is  to  visit  the  manufacturers. 
Any  expense  incurred  m  ' '  '  considered  well 


BUYING  233 

invested,  for  the  buyer  must  be  constantly  revising  the 
basic  facts  upon  which  his  buying  is  planned. 

4.  Determination  of  lines  to  he  carried, — In  a  gen- 
eral store  which  is  to  serve  all  the  ordinary  needs 
of  the  community,  the  problem  is  to  have  on  hand  all 
the  goods  that  are  wanted  as  far  as  the  limited  invest- 
ment of  money  in  stock  permits.  The  real  problem 
here  is  to  apportion  the  investment  in  stock  so  that 
it  meets  the  greatest  possible  number  of  wants,  and 
at  the  same  time  the  sort  that  on  the  whole  are  profit- 
able to  supply. 

There  must  be  a  limit  to  the  variety  of  lines  offered, 
and  to  the  assortment  of  items  in  each  line.  This 
limit  is  fixed  by  local  demand.  Goods  not  in  de- 
mand are  not  stocked  unless  the  merchant  thinks  he 
can  arouse  a  latent  or  unexpressed  demand  for  them. 
The  selection  of  the  variety  and  assortment  of  stock 
is  determined  by  the  amount  or  intensity  of  the  de- 
mand, or  by  the  possibility  of  creating  a  demand. 
The  selection  is  determined  also  by  the  net  profit  to 
be  derived  from  supplying  the  demand.  Future  busi- 
ness must  be  considered,  as  well  as  the  prospect  of 
additional  trade  in  other  lines,  as  a  result  of  supplying 
certain  lines  and  items. 

Subsidiary  to  these  main  considerations  are  such 
questions  as  to  whether  a  new  line  will  fit  in  with 
others  carried.  Ludicrous  combinations  of  lines  are 
often  found.  Thus,  a  store  in  Baltimore,  according 
to  its  sign,  carries  pianos,  organs  and  iron  safes.  On 
the  other  hand,  the  successful  clothier  can  well  add 

XIX-17 


234  RETAIL  MERCHANDISING 

such  lines  as  sporting  goods  to  his  sporting-clothes 
department,  and  such  items  of  jewelry  as  cuff  links, 
etc.,  to  his  haberdashery  section.  Likewise,  shoe-re- 
pairing departments  are  often  added  for  their  con- 
venience or  service  value  to  patrons  of  the  store. 
Closely  alhed  with  this  are  hues  such  as  oriental  rugs 
or  novelties,  which  are  added  for  their  advertising 
value,  even  tho  the  communitj^  demand  would  not 
warrant  such  additions.  Frequently  such  goods  can 
be  obtained  on  consignment. 

5.  Apportionment  of  investment. — The  analysis  of 
the  territory  makes  it  possible  to  estimate  the  amount 
of  total  business  which  the  retailer's  trading  center 
will  produce  on  each  line.  Knowing  how  much  of 
the  total  the  retailer  can  expect  to  get  in  competition 
with  others,  he  can  estimate  his  own  total  sales  in 
each  line.  This  can  be  further  subdivided  according 
to  price  ranges,  on  the  basis  of  average  incomes  of 
different  classes  in  the  trading  territory.  For  in- 
stance, a  merchant  in  a  small  city  in  Indiana,  who 
handles  only  women's  ready-to-wear  garments,  fig- 
ures his  total  sales  for  each  line.  Then  when  he  be- 
gins buying  for  a  season  he  has  an  estimate  of  the 
number  of  garments  in  any  one  line  that  he  expects 
to  sell  at  each  price  range.  If  in  addition  he  knows 
how  many  times  he  can  turn  his  stock  each  year,  he 
can  figure  the  average  stock  requirements.  If  he  can 
do  a  business  of  $5,000  in  women's  waists  and  can  turn 
the  stock  over  five  times  a  year,  he  will  need  an  average 
stock  worth,  at  retail,  $1,000.     During  the  spring 


BUYING  235 

season,  his  stock  will  run  from  a  minimum  of  about 
$500  on  February  1,  to  a  maximum  of  about  $2,000 
at  Easter  time  and  will  then  gradually  fall  to  the 
minimum  of  $500  about  the  end  of  July. 

The  task  of  determining  price  and  style-range 
within  the  line  is  even  more  difficult.  Staples  must 
be  carried  in  full  range  of  size,  color  and  price  at  all 
seasons,  while  novelties  must  be  obtained  from  time 
to  time  according  to  the  expected  demand.  The  stock 
of  novelties  must  be  turned  more  frequently  than  that 
of  staples.  Conditions  of  competition  frequently  af- 
fect the  distribution  of  the  investment  among  lines. 
If  a  general  merchant  is  particularly  strong  in  one 
hne,  as  for  instance,  in  men's  clothing,  it  is  perhaps 
due  to  the  exclusive  agency  of  a  well-known  brand. 
Under  such  circumstances  it  would  be  better  for  an- 
other retailer  in  that  territory  to  refrain  from  stock- 
ing such  a  line  or  better  still  to  maintain  only  a  small 
investment  in  it,  unless,  of  course,  he  can  secure  a 
similar  line  equally  as  good. 

In  the  case  of  a  store  already  operating,  these  esti- 
mates of  the  possible  business  to  be  done  in  each  line 
and  each  range  of  price  serve  as  a  sort  of  quota  sys- 
tem or  ideal  to  attain.  The  past  records  of  sales  as 
well  as  assortments  according  to  price  ranges,  sizes, 
styles  and  the  like  in  each  line,  cannot,  of  course,  be 
neglected  in  forming  these  estimates.  Yet  to  serve  the 
buying  community,  the  activities  of  the  store  should 
be  planned  according  to  community  needs  rather  than 
past  records.     At  first,  it  is  best  to  obtain  a  complete 


236  RETAIL  MERCHANDISING 

variety  of  lines  and  items  rather  than  quantities  of 
each  item  sufficient  to  supply  a  continuous  demand, 
tho  this  course  may  be  slightly  more  costly  because 
of  purchasing  in  small  quantities.  Fewer  sales  are 
lost,  the  opportunity  to  find  out  the  complete  range 
of  demand  is  increased  and  the  initial  investment  in 
stock  is  kept  down.  The  variety  should  ke  kept  up 
to  the  point  which  assures  the  customers  that  they  will 
probably  find  what  they  want  in  the  stock.  There  is 
no  other  way  to  build  up  good-will  for  a  new  store. 

6.  Merchandise  plan. — In  the  financial  budget 
given  in  Chapter  III,  the  outline  of  the  plan  for  the 
business  as  a  whole  was  given.  It  remains  now  to 
plan  the  buying  according  to  that  budget — to  set  up 
a  merchandise  budget  or  "plan,"  as  it  is  generally 
called.  The  merchandising  plan  for  the  store  in  ques- 
tion is  shown  on  the  opposite  page. 

The  merchandise  plan  is  fundamental  to  all  types 
of  retailing.  Some  of  the  smallest  country  stores  are 
being  merchandised  according  to  a  plan ;  and  the  work 
is  so  well  done  that  the  results  obtained  are  within  a 
fraction  of  a  per  cent  of  those  estimated.  Every 
large  store  is  merchandised  according  to  a  plan,  tho 
there  are  various  modifications.  For  instance,  one 
department  store  doing  about  ten  million  dollars' 
worth  of  business  a  year  is  merchandised  on  antici- 
pated costs  of  running  each  department,  rather  than 
on  anticipated  sales.  In  large  stores  where  there  are 
many  departments,  it  is  necessary  to  carry  out  the 
plan  in  greater  detail  in  order  to  show  such  things 


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238  RETAIL  MERCHANDISING 

as  cash  discounts  for  each  department,  departmental 
expenses,  mark-down,  losses  and  the  like.  In  single 
line  and  general  stores,  which  are  not  departmentized, 
the  plan  is  much  simpler  as  the  figures  are  for  the 
business  as  a  whole  rather  than  by  departments. 

7.  Fixing  the  standard  turnover. — It  will  be  no- 
ticed that  a  standard  turnover  for  the  season  is  set 
for  each  department.  In  a  small  store,  the  proprietor 
decides  on  the  number  of  times  he  ought  to  turn  each 
hue  carried  during  the  year  or  season.  (The  figures 
in  the  merchandise  plan  are  for  a  season;  the  annual 
turnover  being  of  course  twice  the  seasonal  turnover. ) 

The  term  turnover  is  of  recent  origin,  and  there  is 
some  confusion  as  to  its  exact  meaning.  Some  mer- 
chants figure  what  they  call  "merchandise  capital" 
turnover.  This  represents,  as  its  name  indicates,  the 
number  of  times  the  capital  used  in  purchasing  goods 
is  turned  over.  This  is  computed  by  dividing  the 
average  stock  maintained  during  the  season,  at  cost, 
into  the  gross  sales  at  retail.  This  method  of  figur- 
ing the  turnover  has  been  applied  to  a  stock  turn- 
over by  some  merchants,  with  the  result  that  they  are 
operating  their  business  on  a  false  basis. 

As  a  matter  of  fact  all  figures  should  be  converted 
at  once  to  the  retail  basis  and  all  calculations  based 
on  both  stock  and  sales  at  retail.  If  this  is  done, 
we  get  the  true  turnover,  which,  in  contra-distinction 
to  the  so-called  merchandise  capital  turnover,  is  called 
the  stock  turnover.  It  is  obtained  by  dividing  the 
average  stock  maintained  during  the  season  or  year 


BUYING  239 

at  retail  prices,  into  the  total  sales  during  that  period 
at  retail  prices.  Some  stores  figure  it  by  dividing 
the  average  stock  at  cost  into  the  total  sales  at  cost. 
This  method  is  not  quite  as  accurate  as  the  one  using 
the  retail  prices  as  a  basis  because  the  retail  figures 
show  more  accurately  the  true  value  of  the  merchan- 
dise. The  total  volume  of  sales  at  retail  is  a  definite 
fiofure,  while  the  actual  cost  of  merchandise  sold  is 
difficult  to  obtain  except  thru  the  maintenance  of  elab- 
orate cost  systems.  The  average  stock  at  retail  is 
likewise  easy  to  figure  accurately  because  in  all  up-to- 
date  stores,  merchandise  is  given  a  retail  price  as 
soon  as  it  is  received.  The  actual  cost  of  each  lot  is 
obtained  afterward  by  taking  off  the  mark-up  and 
likewise  the  loss  thru  reductions. 

8.  Determining  the  gross  profit  desired. — The  pro- 
prietor or  merchandiser  and  the  buyer  in  each  line, 
must  plan  the  amount  of  gross  profit  desired  on  the 
line.  In  actual  practice  the  figure  is  arrived  at  in 
any  one  of  several  ways.  If  the  expense  of  doing 
business  in  a  department  is  25  per  cent  of  the 
total  sales  and  it  is  desired  to  make  a  net  profit 
of  five  per  cent  on  each  sale,  it  is  evident  that  the 
gross  profit  on  sales  must  be  30  per  cent.  However, 
there  will  occasionally  be  a  necessity  for  marking  down 
some  goods  in  connection  with  sales,  and  some  goods 
will  be  damaged,  while  others  will  be  stolen.  Again, 
it  will  be  necessary  to  mark  certain  lines  below  the 
standard  mark-up  as  "leaders"  or  to  meet  competitors' 
sales  prices.     Hence,  the  average  mark-up  must  be 


240  RETAIL  MERCHANDISING 

somewhat  higher  than  the  actual  gross  profit  desired. 
In  lines  where  style  is  an  element,  reductions  are 
more  frequent  than  in  staple  lines.  Thus,  it  is  im- 
possible to  set  one  standard  for  all  lines.  In  the  mer- 
chandise plan  it  will  be  noticed  that  in  women's  ready- 
to-wear  garments  the  plan  calls  for  a  maintained  gross 
profit  of  20  per  cent.  In  order  to  average  this  on  all 
goods  sold,  as  in  reduction  sales,  goods  are  frequently 
sold  below  actual  cost,  it  will  be  necessary  to  aim  at 
more  than  20  per  cent  profit.  But  it  will  be  noticed 
that  the  number  of  turnovers  is  greater  in  this  de- 
partment than  in  any  other.  Here  an  average  gross 
profit  of  20  per  cent  is  sufficient,  whereas  an  average 
gross  profit  of  as  high  as  33  1/3  per  cent  is  required 
in  certain  slow-selling  lines.  So,  in  the  final  analysis, 
the  customer  pays  on  an  average  about  the  same  per 
cent  above  the  cost  of  the  merchandise  in  all  lines. 
What  is  lost  to  the  merchant  thru  reductions  is  more 
than  gained  thru  frequency  in  turning  the  stock. 

9.  Turnover  as  a  merchandise  factor. — As  one  suc- 
cessful retailer  remarks:  "One  of  the  most  insidi- 
ous leaks  from  the  'profit  chest'  of  a  retail  store 
is  very  often  caused  by  the  idleness  of  stock,  failing 
to  turn  it  as  often  as  it  should  be  in  a  given  period. 
And  this  is  due  in  a  good  many  cases  to  the  fact  that 
the  merchant  has  no  standard  turnover  in  each  line 
to  go  by."  Many  merchants  try  to  build  up  volume 
by  having  such  complete  lines  that  they  can  turn 
their  stocks  only  twice  a  year.  If  they  would  but 
study  the  needs  of  their  community,  the  demand  from 


BUYING  241 

day  to  day,  and  order  frequently  and  in  small  quan- 
tities, they  could  get  along  with  much  less  inactive 
stock,  and  their  stock  would  be  newer  and  fresher 
at  all  times.  Frequently,  too  many  competing  lines 
are  carried  by  the  retailer  simply  because  he  assumes 
he  has  to  carrj'  them  in  order  to  hold  his  own  in  a 
competitive  market.  In  the  toilet  goods  department 
of  one  store,  twenty-eight  lines  of  talcum  powder  were 
carried  while  only  fifteen  of  them  were  selling  in  suffi- 
cient quantity  to  warrant  being  stocked.  Every  one 
who  is  acquainted  with  the  typical  country  store 
knows  that  the  slow-selling  and  dead  stock  is  a  heavy 
drag  on  the  business.  The  stock  which  does  not  move 
eats  up  the  profit  on  other  lines.  The  longer  it  stays 
on  the  shelves,  the  more  it  depreciates,  the  more  in- 
terest and  rent  charges  it  piles  up,  and  the  more  it 
deprives  the  merchant  of  profits  he  might  be  making 
on  fresher  and  more  salable  merchandise. 

Of  more  importance  is  the  merchant's  obligation 
to  his  customers.  It  is  his  duty  to  handle  what  the 
customer  wants,  in  the  quantity  needed,  and  at  as 
low  prices  as  are  consistent  with  giving  the  merchant 
a  fair  net  profit  at  the  end  of  the  year.  Now  suppose 
the  merchant  buys  $1,000  worth  of  goods  and  marks 
it  up  50  per  cent  on  cost  or  33  1/3  per  cent  on  retail. 
Because  of  competitive  selling  conditions,  his  price  is 
so  high  that  he  can  turn  that  stock  only  twice  a  year, 
at  a  total  gross  profit  of  $1,000.  Suppose,  instead, 
he  marks  the  goods  at  a  33  1/3  per  cent  mark-up  on 
cost  (25  per  cent  on  retail)  so  that  on  the  stock  cost- 


24^  RETAIL  MERCHANDISING 

ing  him  $1,000,  he  makes  a  profit  of  $333.33  against 
$500  on  the  previous  basis,  but  on  account  of  the 
lower  price,  he  can  turn  his  stocks  four  times  during 
the  year,  then  his  gross  profit  at  the  end  of  the  year 
will  be  $1,333.33,  or  an  increase  of  $333.33  over  the 
previous  method  of  figuring  a  higher  gross  profit.  At 
the  same  time,  he  has  supplied  his  customers  with  de- 
sired merchandise  at  a  lower  price  and  has  rendered 
them  greater  service. 

Many  retailers  have  seized  upon  the  turnover  as  a 
grand  panacea  for  merchandising  shortcomings  and 
have  made  a  fetish  of  it.  It  is  true  that  it  is  one  of 
the  evidences  of  successful  merchandising  but  only 
one.  Various  other  factors  must  be  taken  into  con- 
sideration in  order  to  determine  the  results  of  good 
merchandising.  Against  the  desire  for  a  high  turn- 
over must  be  set  the  necessity  of  maintaining  sufficient 
stocks  to  take  care  of  the  needs  of  the  shopping  clien- 
tele and  likewise  the  relative  importance  of  volume  of 
business. 

It  is  much  better  to  serve  well  in  five  lines  by  hav- 
ing five  stocks  of  sufficient  completeness  to  take  care 
of  average  needs,  bought  according  to  a  merchandise 
plan  which  is  built  on  a  knowledge  of  the  trading 
community,  at  the  lowest  quantity  prices,  with  de- 
liveries according  to  seasonal  needs,  than  in  fifteen 
lines  of  which  none  is  complete  or  bought  on  advan- 
tageous terms.  The  attempt  to  make  too  many  turns 
of  stock  is  dangerous.  The  costly  sale  is  the  one  you 
lose  thru  being  "out  of  stock,"  and  no  "want  slip" 


BUYING  24-3 

svstem  yet  devised  has  told  how  many  such  sales  are 
lost  daily  in  the  store,  making  a  fetish  of  turnovers. 

10.  Controlling  the  buying. — The  merchandise  plan 
shows  how  much  business  should  be  done  during 
a  season.  This  is  split  up  into  months  of  the  season 
so  as  to  form  a  sort  of  quota  for  each  month.  It  is 
also  necessary  to  leave  stocks  clean  at  the  season's 
end  and  for  this  purpose  a  desired  minimimi  is  set. 
Therefore,  the  merchant  can  figure  out  what  his  sales 
and  stock  on  hand  should  be  from  week  to  week  in 
each  hne  and  know  how  much  it  is  necessary  to  buy 
thruout  the  season,  and  how  much  stock  from  week 
to  week  to  take  care  of  the  volume  of  business  which 
has  been  planned.  The  necessary  sum  is  allotted  to 
each  department,  by  months  of  the  season;  and  as  pur- 
chase orders  go  thru,  the  totals  are  deducted  from  the 
allotment.  Some  stores  will  not  allow  buyers  to  ex- 
ceed the  current  allotment  for  each  department  unless 
under  unusual  conditions.  If  sales  run  ahead  of  the 
quota,  the  amount  of  the  increase  is  automatically 
added  to  the  current  buying  allotment;  and  hkewise, 
if  sales  run  behind,  it  is  deducted. 

The  system  described  is  open  to  the  criticism  that 
it  is  too  mechanical.  Buyers  frequently  complain  that 
their  superiors  will  not  allow  them  to  buy  necessary 
merchandise.  Generally  this  is  an  acknowledgment 
of  previous  poor  judgment  in  buying.  Successful 
merchants  move  slow-selling  merchandise  by  freshen- 
ing it  up  with  new  goods ;  and  so  are  as  anxious  as  the 
buyer  to  help  in  reducing  the  stock  thru  a  well-planned 


244  RETAIL  MERCHANDISING 

special  sale,  even  tho  it  may  necessitate  an  extra  al- 
lotment for  a  special  purchase  to  add  to  what  is  al- 
ready an  over-pm-chase. 

In  lines  in  which  styles  play  an  important  part, 
the  buyer  for  even  the  small  store,  visits  market  cen- 
ters frequently  in  order  to  keep  in  close  touch  with 
the  market.  These  visits  sometimes  result  in  getting 
better  prices  but  always  in  strengthening  the  relation- 
ship between  wholesaler  and  retailer,  as  well  as  in 
giving  the  retailer  a  better  knowledge  of  merchandise 
and  trade  conditions.  The  buyer  must  follow  up 
every  other  means  of  studying  his  buying  market, 
such  as  trade  papers,  catalogs,  circulars  and  quota- 
tion sheets  of  wholesalers  and  manufacturers.  He 
should  be  acquainted  with  the  trade  association  in  his 
line,  particularly  if  it  offers  such  a  buying  service  as 
is  rendered  by  the  National  Retail  Hardware  Asso- 
ciation. 

Various  questions  arise  in  connection  with  the  se- 
lection of  wholesalers  with  whom  one  is  to  deal,  and 
upon  most  of  them  general  principles  can  be  given 
in  answer.  For  example,  should  the  retailer  buy 
from  nearbj'-  wholesalers  or  from  those  located  in  dis- 
tant markets?  In  the  case  of  small  retailers,  the 
closer  the  buyer  is  to  the  source  of  supply,  the  better. 
Jobbers  recognize  that  there  is  a  distance  beyond 
which  they  cannot  render  efficient  service,  and  manu- 
facturers, such  as  the  Regal  Shoe  Company,  in  order 
to  serve  efficiently  distant  customers,  find  it  neces- 
sary to  open  branch  warehouses  at  various  centers 


BUYING  245 

with  complete  wholesaling  and  dealer  service  equip- 
ment. 

11.  Concentration  of  purchases. — Should  the  dealer 
scatter  or  concentrate  his  purchases?  There  can  be 
no  doubt  of  the  value  of  concentration,  for  the  whole- 
saler with  whom  the  buyer  does  a  large  part  of  his 
business  is  in  a  better  position  to  cooperate  with  him 
than  a  wholesaler  who  secures  only  a  small  part  of  the 
business.  Concentration  is  also  necessaiy  in  order  to 
get  the  exclusive  sale  of  a  line  of  goods.  But  it  is  of 
even  greater  importance  as  a  sort  of  insurance  against 
financial  troubles  and  a  guarantee  of  prompt  deliver- 
ies. If  a  worthy  dealer  owes  only  a  few  houses,  these 
houses  often  enter  into  an  agreement  to  give  him  fi- 
nancial assistance  if  necessary.  If  he  owes  many 
wholesale  and  manufacturing  concerns,  it  is  ahnost  an 
impossibility  to  effect  such  an  agreement  when  he 
needs  help.  There  is  also  an  unwritten  law  that  when 
there  are  a  great  many  creditors  at  the  time  of  fail- 
ure, it  is  a  prima  facie  evidence  of  deliberate  fraud. 

On  the  other  hand,  concentration  may  also  lead  to 
an  easy-going  relation  between  the  salesmen  of  manu- 
facturers and  wholesalers,  and  as  a  result  the  buyer 
may  not  get  as  good  prices  as  if  he  were  to  shop 
around  and  occasionally  haggle  over  prices.  In  any 
case  the  buyer  must  be  independent  and  must  know 
his  market  and  what  other  wholesalers  are  offering. 
Unfortunately  the  rule  of  caveat  emptor  has  not  en- 
tirely passed  away.  While  the  wholesaler  should  give 
the  best  treatment  to  his  best  customers,  and  gener- 


246  RETAIL  MERCHANDISING 

ally  does  so,  there  is  still  a  need  for  good  buying  by 
a  man  who  knows  the  market  and  the  demand,  who 
is  independent,  yet  appreciates  the  cooperation. 

12.  Buying  interview. — In  an  interview  between  a 
buyer  and  a  salesman  or  representative  there  is  a  dis- 
tinct advantage  to  the  one  who  dominates  the  inter- 
view. The  alert  buyer  is  quick  to  gain  this  advan- 
tage and  assume  an  impersonal  attitude  in  which  he 
can  resist  pressure  and  make  the  salesman  prove  his 
statements.  Furthermore,  a  good  salesman  is  quick 
to  perceive  a  buyer's  ability  and  will  treat  him  ac- 
cordingly. 

Courtesy  on  the  part  of  the  buyer  is  never  wasted. 
A  salesman  may  have  nothing  of  interest  to  offer  one 
season  but  the  following  season  he  may  have  a  splen- 
did line,  and  will  help  the  buyer  who  has  been  friendly, 
even  tho  refusing  to  buy.  This  is  especially  true  in  a 
"seller's  market,"  when  retailers  have  trouble  in  get- 
ting goods.  The  buyer  who  has  treated  the  salesmen 
of  wholesalers  squarely  in  the  past  is  now  getting  the 
favors.  The  fellow  who  has  always  been  gruff  and 
unpleasant,  who  has  always  taken  an  unfair  advan- 
tage, is  begging  in  vain  for  merchandise.  Mr.  Lew 
Hahn,  Editor  of  Women  s  Wear,  in  an  address  be- 
fore an  assembly  of  merchandise  managers  of  the 
National  Retail  Dry  Goods  Association  in  Septem- 
ber, 1916,  gave  this  admonition  to  the  buyer:  "Be 
courteous;  be  fair;  be  watchful." 

13.  Selection  of  merchandise  for  quality. — It  goes 
without  saying  that  the  buyer  should  be  able  to  judge 


BUYING  247 

qualities;  yet  the  means  of  learning  how  to  test  for 
quality  have  been  few.  Large  concerns  have  chemi- 
cal laboratories  as  an  adjunct  to  their  buying  organi- 
zation. For  the  smaller  concerns  there  are  in  every 
line  many  simple  tests  that  can  be  readily  learned 
and  quickly  applied.  From  time  to  time  simple  trea- 
tises on  such  methods  are  published.  For  instance, 
there  is  a  variety  of  recent  books  on  textiles  descrip- 
tive of  processes  of  manufacture,  trade  names,  uses 
and  tests  for  qualities.  Many  of  these  are  issued  by 
manufacturers. 

14.  Element  of  price. — Merchandise  of  quality  will 
bring  its  price  in  spite  of  so-called  shrewdness  on 
the  part  of  the  buyer.  Manufacturers  work  on  a 
narrow  margin  of  profit  and  it  is  certain  that  the 
buyer  who  haggles  and  forces  down  prices  beyond  a 
reasonable  limit  is  sure  to  get  inferior  merchandise, 
^lany  merchants  realize  this.  The  merchandise  man- 
ager of  a  large  department  store  remarked  at  the  dry- 
goods  convention  mentioned  above,  "When  my  buyer 
of  women's  ready-to-wear  coats  finds  an  attractive 
one  at,  say,  $18  wholesale,  he  does  not  try  to  beat 
down  the  price  to  $16.50.  Instead,  he  would  fre- 
quently offer  the  manufacturer  a  dollar  more  to  put 
in  a  better  lining  or  a  more  attractive  collar." 

15.  Attitude  toward  discounts. — There  are  as  a 
rule  two  sources  of  profits  in  retailing — the  primary 
profit  from  buying  and  selling,  which  is  called  the 
merchandise  profit,  and  the  secondary  profit  from  the 
cash  discounts  obtained  in  excess  of  the  value  of  the 


248  RETAIL  MERCHANDISING 

money  used.  Discounts  will  average  thru  all  mer- 
chandise lines  about  two  per  cent  for  payment  within 
10  days  with  net  at  30  days.  Assuming  that  the 
account  is  paid  at  the  beginning  of  the  ten-day  pe- 
riod, this  would  give  a  discount  of  two  per  cent  for  the 
use  of  the  funds  for  30  days.  On  the  basis  that 
the  money  is  worth  six  per  cent  per  annum,  there  is  a 
profit  of  18  per  cent  in  taking  the  discount.  There- 
fore it  is  not  surprising  that  buyers  strive  to  get  as 
big  discounts  as  possible.  In  some  houses  there  is  a 
rule  that  buyers  should  get  an  average  of  five  per  cent 
discount  for  cash.  They  figure  on  selling  their  mer- 
chandise so  low  as  to  eliminate  any  net  merchandise 
profits,  depending  on  the  discount  profit  for  all  the 
net  profits  to  the  business.  In  the  long  run  such 
houses  are  simply  buying  discounts.  They  usually 
pay  a  higher  price  for  their  merchandise  in  order  that 
a  discount  may  be  thrown  in.  But  it  should  be  the 
rule,  once  the  desired  merchandise  has  been  bought  at 
a  fair  price,  to  get  as  good  a  cash  discount  as  can  be 
obtained. 

16.  Accrediting  the  discounts. — The  discount  ques- 
tion brings  up  another  which  is  even  more  disputed 
in  the  merchandise  world.  Is  the  discount  a  part  of 
the  price  of  the  merchandise  and  so  a  trading  profit, 
or  is  it  a  result  of  financing  the  business  and  so  a 
financial  profit?  In  other  words,  does  the  discount  go 
to  the  credit  of  the  merchandise  division  of  the  busi- 
ness or  is  it  an  office  profit?  Practice  varies  widely 
and  there  are  many  arguments  to  support  each  side 


BUYING  24^9 

of  the  question.  It  has  always  seemed  to  the  writer 
that,  as  cash  discounts  must  be  taken  under  present 
conditions  of  competition  in  retaihng,  if  the  retailer 
is  to  make  a  living  profit,  the  buying  cost  of  the  mer- 
chandise is  the  net  price  after  all  discounts  have  been 
taken  off,  and  therefore,  that  the  cash  discounts  be- 
long to  the  merchandise  division.  In  that  case,  the 
merchandise  and  discount  profits  should  be  combined 
to  show  the  profit  in  each  line. 

17.  Eleinent  of  style,  novelty  and  eacclusiveness. — 
The  class  of  trade  for  which  one  is  buying  will 
determine  how  much  importance  should  be  given  to 
style,  novelty  and  exclusiveness.  It  is  always  ad- 
visable to  have  a  few  novelties  on  hand  to  attract  at- 
tention and  brighten  up  the  store.  Frequently,  too, 
they  can  be  obtained  on  consignment.  In  lines  such 
as  oriental  rugs,  diamonds,  furs  and  gowns,  a  large 
percentage  of  the  business  in  small  cities  and  villages 
is  done  thru  consignments.  Fresh,  attractive  mer- 
chandise always  offers  the  strongest  possible  selling 
appeal  and  aids  gi-eatly  in  advertising  the  store. 

18.  Stocking  new  lines. — When  it  comes  to  stock- 
ing of  new  lines  in  competition  with  lines  already  car- 
ried, or  with  specialties  and  luxuries,  the  analysis  must 
go  further.  The  buyer  should  ask  himself  such  ques- 
tions as  the  following:  Is  there  a  sufficient  demand 
to  warrant  my  stocking  this  article?  Do  I  now 
carry  in  stock  similar  articles  that  will  answer  the 
purpose  or  that  are  even  better?  Will  it  fit  into  the 
prearranged  merchandise  plan?      Are  the  manufac- 

XIX-18 


250  RETAIL  MERCHANDISING 

tiirers  reliable  on  quality,  satisfaction  and  deliveries? 
What  quantity  can  I  sell  in  one  month?  In  six 
months  ?  Then  may  be  considered  the  matter  of  price, 
discounts,  margin  of  profit,  etc. 

19.  Pricing  the  goods. — In  the  merchandise  plan, 
a  mark-u])  is  set  for  each  line.  This  is  the  amount  of 
gross  profit  which  must  be  maintained  above  all  losses 
and  reductions.  It  serves  only  as  a  general  guide  in 
pricing  each  lot.  Goods  are  bought  to  sell  within  a 
definite  price  range.  The  buyer  goes  into  the  mar- 
ket to  buy  women's  ready-to-wear  suits  to  be  sold  at 
$25  and  he  is  expected  to  make  a  certain  gross  profit. 
Therefore,  he  knows  what  the  limit  of  price  cost  must 
be  and  buys  accordingly. 

In  some  instances,  it  is  well  to  let  the  salespeople  as- 
sist in  the  buying.  That  is  one  of  the  advantages  of 
buying  from  traveling  salesmen.  When,  for  exam- 
ple, a  garment  is  shown,  the  salespeople  may  be  asked 
to  examine  it  and  suggest  the  retail  selling  price  for 
it,  without  knowing  the  cost.  If  the  consensus  of 
opinion  indicates  that  it  will  bring  $25  and  the  price 
is  low  enough  to  obtain  the  desired  profit,  it  may 
well  be  bought.  Perhaps,  at  $25  it  may  bring  even 
more  than  the  desired  profit.  If  so,  the  extra  profit 
will  help  to  balance  a  loss  somewhere  else  or  to  serve 
as  a  margin  of  safety.  After  all  is  said,  goods  are 
worth  only  what  they  will  bring.  Slow-moving  goods 
must  be  reduced  and  cleared  out  because  the  sooner 
the  loss  is  taken  the  less  it  will  be. 

20.  Profits. — This   brings   us   to   the   question   of 


BUYING  251 

what  is  a  fair  profit?  Profit  may  be  defined  as  that 
amount  which  a  merchant  has  left  after  all  conceiv- 
able expenses  of  doing  business  have  been  taken  care 
of,  such  costs  to  include  even  such  items  of  expense 
as  interest  on  capital  invested  and  reasonable  com- 
pensation to  the  merchant  for  the  services  which  he 
gives  the  business.  Profit  is  a  payment,  not  only  for 
ability  but  also  for  initiative,  and  for  the  risks  which 
the  merchant  takes  in  doing  business.  It  is  profit 
which  measures  a  merchant's  success. 

The  man  who  has  brought  the  business  into  being — 
giving  much  time  to  the  preparation  and  to  the  study 
of  conditions,  and  on  whom  rests  the  responsibility 
of  success,  a  responsibility  which  is  usually  with  him 
at  all  times — is  surely  deserving  of  something  better 
than  a  manager's  salary  for  his  work  and  worry,  his 
risks  and  responsibilities. 

21.  Buyer  as  a  merchant. — It  would  seem  from 
this  discussion  that  the  buyer  had  enough  to  do  in 
buying  alone.  As  a  matter  of  fact,  in  most  retail 
stores,  from  the  smallest  to  the  largest,  the  buying 
has  to  be  worked  in  with  the  bigger  job  of  merchan- 
dising. Very  large  stores  expect  their  buyers  to 
spend  their  first  hour  in  the  morning  supervising  the 
arrangement  of  the  stock  on  the  selling  floor  and  also 
in  the  reserve  stock  rooms.  Up  to  eleven  o'clock, 
their  time  is  given  to  buying.  The  remainder  of  the 
day  is  spent  on  the  selling  floor,  assisting  salespeople 
and  customers.  INIany  buyers  "keep  a  book,"  as  sell- 
ing and  making  out  sales  slips  is  called.     No  man 


252  RETAIL  MERCHANDISING 

can  keep  in  touch  with  consumers'  demands  without 
this  personal  contact.  In  addition,  if  the  buyer  is  to 
be  a  real  merchant  he  must  collaborate  with  the  ad- 
vertising man  in  planning  the  advertising  and  display 
of  his  lines  and,  in  addition,  cooperate  with  every 
other  person  connected  with  the  successful  operation 
of  the  store. 

REVIEW 

Describe  some  ways  in  which  basic  facts  for  merchandising  are 
obtained.  How  would  you  determine  the  lines  of  stock  to  be 
carried  in  a  retail  store? 

If  you  had  a  retail  store  in  a  small  town  how  would  you  be 
guided  in  apportioning  your  investment  ? 

What  is  the  correct  method  of  figuring  a  turnover?  Why 
does  a  rapid  turnover  indicate  successful  merchandising? 

How  does  a  buyer  keep  in  touch  with  the  buying  market? 

Show  the  value  and  the  drawbacks  of  concentration  of  pur- 
chases. 

Discuss  cash  discounts.     How  would  you  accredit  them? 


CHAPTER  VII 

STOCKKEEPING 

1.  Necessity  for  good  stockkeeping. — Since  great 
care  is  taken  to  obtain  the  right  kind  of  merchandise 
to  be  sold,  naturally  as  much  care  should  be  given 
to  handling  and  keeping  track  of  it;  if  this  second 
phase  is  neglected,  the  whole  merchandising  plan  will 
fail.  Yet  it  is  striking  how  little  serious  attention  is 
given  to  the  matter.  As  is  so  often  the  case,  the 
obvious  course  is  not  generally  followed.  The  re- 
tailer, after  planning  and  working  to  get  the  right 
kind  of  goods  at  the  right  price,  relaxes  his  concern 
regarding  the  goods  themselves  and  centers  his  ener- 
gies on  advertising,  or  becomes  engrossed  in  the  mul- 
titudinous details  of  running  his  store.  He  looks 
upon  the  handling  and  storing  of  the  merchandise  as 
physical  labor.  As  for  a  systematic  means  of  keep- 
ing track  of  it,  why  all  the  fuss?  The  doors  are 
locked  at  night;  and  during  the  daytime,  the  stuff 
is  there  to  be  sold,  and  it  either  sells  or  stays  until  a 
clearance  sale  is  held.  So  usually  the  merchandise  is 
left  to  take  care  of  itself. 

The  money  is  used  to  buy  merchandise  in  order 
that  the  retailer  may  sell  it  again  at  a  profit.  The 
buying  expense,  whether  the  buying  is  done  by  the 

253 


254.  RETAIL  MERCHANDISING 

proprietor  himself,  or  by  a  salaried  buyer,  is  not  to 
be  neglected.  One  department  store  adds  seven  per 
cent  for  direct  buying  expense  and  general  buying 
overhead.  Another  store  considers  four  per  cent 
enough.  The  average  expense  is  probably  about  five 
per  cent.  Add  to  this  the  freight,  cartage  and  re- 
ceiving-room expenses  and  a  proportionate  share  of 
the  general  overhead,  deduct  any  cash  discounts,  and 
you  have  the  net  delivered  cost  of  your  merchandise. 
Every  dollar's  worth  of  merchandise  on  the  selling 
floor  has  cost  nearly  $1.10,  and  the  moment  it  gets 
there  it  begins  to  depreciate.  In  some  lines — such  as 
millinery — only  two  weeks  is  allowed  for  selling  the 
goods  at  the  regular  price;  while  in  others,  the  time 
allowance  may  be  two  to  six  months.  When  the  time 
allowance  expires,  the  goods  are  marked  down  materi- 
ally and  then  again,  and  again,  if  necessary,  until 
they  are  sold.  This  reduction  is  made  to  lessen  the 
loss  that  is  certain  to  accrue  if  the  goods  are  allowed 
to  remain  in  the  store.  And  what  are  the  causes  for 
this  depreciation?  One  is  improper  storing  and  care 
of  the  merchandise.  Boxes  become  broken ;  goods  be- 
come soiled,  mussed  or  faded;  larger  quantities  than 
can  be  used  are  allowed  to  accumulate ;  ranges  of  sizes, 
colors  and  styles  become  irregular;  and  goods  are  al- 
lowed to  remain  in  the  stock  rooms  which  should  be 
on  show.  As  a  result,  sales  are  lost  because  goods  are 
out  of  stock;  sometimes  employes  think  they  are  out 
of  stock  because  there  is  no  way  of  telling  absolutely 
what  is  in  stock  at  the  moment.     Such  a  condition  of 


STOCKKEEPING  255 

affairs  is  a  great  handicap  both  in  sales  and  records. 

The  explanation  of  the  whole  matter  lies  in  the  fact 
that  many  merchants  give  their  personal  attention  to 
watching  the  cash,  while  they  delegate  to  some  husky 
young  chap — a  man  of  brawn  rather  than  of  brains — 
the  task  of  caring  for  the  merchandise.  They  fail  to 
realize  that  people  will  "pilfer"  merchandise  who 
would  not  "steal"  money.  They  do  not  understand 
that,  in  the  purchase  of  their  merchandise,  an  expense 
of  from  five  to  ten  per  cent  was  incurred,  which  they 
can  get  back  only  by  selling  at  a  profit.  And  they 
do  not  know,  or  they  forget,  that  the  merchandise  be- 
gins at  once  to  depreciate  rapidly.  ]\Ierchants  would 
be  better  off  if  they  would  put  the  honest  young 
"husky"  in  charge  of  their  cash,  and  assume  personal 
responsibihty  for  their  merchandise. 

2.  Receipt  of  merchandise. — It  does  not  matter 
whether  the  merchandise  is  received  at  the  back  door 
or  at  the  special  entrance  to  a  receiving  room — the 
important  thing  is  that  there  should  be  a  definite  place 
where  it  is  always  received,  and  where  the  receipt  of 
it  is  recorded.  In  any  case,  the  receiving  quarters 
need  be  only  just  large  enough  to  hold  the  inflow  of 
goods  for  an  hour  or  so,  since  there  should  be  no  possi- 
bility of  their  being  delayed  in  getting  to  the  selling 
floor,  or  to  the  reserve  stock  room.  Suppose,  as  in  the 
store  mentioned  earlier,  the  buying  expense  is  seven 
per  cent,  and  the  freight  and  cartage  $2.00.  And 
that  the  lot  consists  of  ten  dresses,  which  cost  the  mer- 
chant $10  each  at  wholesale,  and  that  he  obtained  a 


256  RETAIL  MERCHANDISING 

discount  of  five  per  cent  ten  days,  net  60  days.  Of 
course  the  discount  is  to  be  taken  in  this  store,  and  is 
to  be  credited  to  the  department.  Suppose,  also,  that 
the  merchant  is  to  get  a  mark-up  of  20  per  cent  on 
retail,  or  25  per  cent  on  cost.  The  invoice,  with  his 
annotations  would  read  as  follows : 

10  dresses  at  $10.00  each $100.00 

5  per  cent  for  cash  in  ten  days 5.00 

Net  to  manufacturer $  95.00 

Freight  and  cartage 2.00 

Total  cost  of  dresses $  9T.00 

Direct  buying  expense  and  general  buying  overhead  at  7  per  cent. .       6.79 

Net  delivered  cost  of  dresses $103.79 

Net  delivered  cost  for  each  dress 10.38 

Mark-up  of  20  per  cent  (25  per  cent  on  cost) 2.60 

Retail  price  per  dress 12.98 

In  actual  practice  the  buyer  would  now  look  over 
the  goods,  calling  into  consultation  several  of  his  sales- 
people, and  decide  what  retail  price  to  put  on  them. 
Some  dresses  might  show  up  better  than  others — 
there  might  be  all  kinds  of  contingencies  to  affect  the 
decision  as  to  the  final  price.  But  under  average  con- 
ditions, the  price  for  each  dress  would  be  made  $13, 
or  $12.98  in  stores  where  "penny  prices"  are  used. 

In  the  receiving  room,  a  ticket  will  be  made  out  for 
each  garment,  showing  the  lot  number,  the  size,  the 
color  and  the  price  at  retail.  The  cost  price  does  not 
show  on  the  ticket,  even  in  code.  Thereafter,  the  dress 
is  a  thirteen-dollar  dress,  not  a  ten-dollar  one;  and 
there  is  great  importance  in  this  because  we  are  all 
influenced  by  names  and  terms.     In  some  houses, 


STOCKKEEPING  257 

after  the  invoice  is  paid  and  destroyed,  there  is  no  way 
of  telling  absolutely  what  any  individual  article  cost. 
A  general  idea  can  be  gained  from  the  average  mark- 
up required  in  a  department  or  line,  but  the  thing  that 
concerns  the  retailer,  after  the  articles  are  bought,  is 
what  they  will  sell  for.  If  a  buyer  does  not  mark  up 
any  article  to  the  usual  limit  set  for  that  line,  the  re- 
ceiving clerk  should  get  the  authority  of  the  manage- 
ment before  marking  the  goods  below  the  figured  per 
cent  of  mark-up. 

The  value  of  the  goods  at  inventory  time  is  the  only 
figure  of  any  interest.  This  may  be  greater  or  less 
than  the  cost,  and  the  only  way  to  find  it  is  to  appraise 
the  merchandise  and  ascertain  what  it  will  bring,  or 
at  what  price  it  can  be  replaced.  If  the  merchandise 
consists  of  staples  and  the  market  is  rising,  the  mer- 
chant will  appraise  it  at  its  current  market  value  and 
mark  up  his  retail  price  correspondingly.  If,  on  the 
other  hand,  it  is  depreciating  for  any  reason,  or  if  the 
market  is  declining,  he  must  appraise  it  for  what  it  is 
worth  at  the  time  of  inventory.  He  must  also  reduce 
his  retail  price  correspondingly.  The  profit  he  makes 
out  of  a  rising  market,  he  should  take  without  any 
qualms  of  conscience,  and  he  must  take  as  philo- 
sophically any  losses  from  a  falling  market.  In  the 
case  of  the  latter,  the  sooner  the  merchant  takes  his 
losses  the  smaller  they  will  be. 

In  this  connection  it  is  not  recommended  that  the 
retailer  become  a  speculator,  as  many  jobbers  have 
done.     The  function  of  the  retailer  is  that  of  a  retail 


258  RETAIL  MERCHANDISING 

distributor  and  he  is  not  expected  to  make  a  specula- 
tive profit.  The  retailer  who  feels  assured  of  a  rising 
market  uses  good  business  judgment  if  he  buys  staples 
for  several  months'  consumption  while  the  price  is 
low.  But  primarily,  he  buys  for  immediate  resale 
only.  When  he  buys  more  food  products  than  he 
can  sell  and  stores  them  to  speculate  with  them  on 
the  produce  exchange,  he  is  not,  at  least  for  the  time 
being,  a  retailer. 

3.  Reserve  stocks. — There  is  no  fundamental  reason 
for  keeping  reserve  stocks.  The  buyer  should  be  able 
to  distribute  his  deliveries  in  such  a  way,  and  to  obtain 
so  much  merchandise  on  reorders,  that  whatever  stock 
is  required  to  run  the  business  can  be  kept  on  the  sell- 
ing floor.  After  all,  merchandise  is  bought  to  be 
sold,  and  the  only  place  to  sell  it  is  from  the  shelves 
or  over  the  counter.  The  reserve  stock  is  dead  stock, 
and  is,  at  best,  a  heavy  drag  on  the  business.  Because 
they  realize  this  fact,  shrewd  merchants  are  cutting 
down  the  space  allowed  for  reserve  stocks. 

One  New  York  department  store,  which  has  five 
large  selling  floors,  until  recently  devoted  a  whole 
floor  to  the  reserve  stock.  They  decided,  however, 
that  keeping  so  much  reserve  encouraged  overbuying 
and  tended  to  cause  slow  turnovers.  Therefore,  at 
the  beginning  of  the  spring  season  of  1916,  they  cut 
down  the  space  for  resei-i^e  stock  to  a  quarter  of  what 
it  had  been  and  set  a  maximum  and  a  minimum  re- 
serve for  each  line  of  novelties  and  for  each  item  of 
staples.     Then  they  told  their  buyers  that  it  was  up 


STOCKKEEPING  259 

to  them  to  control  their  stocks  and  their  purchasing  so 
closely  that  they  would  be  able  to  serve  the  trade  as 
well  without  the  large  reserve  stocks.  At  the  same 
time  they  rearranged  their  selling  floors  and  put  in 
new  fixtures  that  allowed  them  to  carry  larger  active 
or  "forward"  stocks.  The  plan  has  resulted  in  a  ma- 
terial increase  in  sales  because  of  the  presence  of  a 
fresher  stock  on  hand  at  all  times,  and  because  of  the 
greater  turnover,  the  greater  volume  of  business  and 
the  gi-eater  net  profits,  with  no  increase  in  want-slips 
calling  for  goods  out  of  stock.  This  example  fur- 
nishes striking  evidence  of  the  advisability  of  keeping 
the  amount  of  reserve  stocks  down  to  a  minimum. 

During  the  year  1917,  it  was  a  constant  problem 
for  the  average  retailer  to  get  enough  staple  merchan- 
dise to  supply  his  needs,  partly  because  of  the  inability 
of  manufacturers  to  keep  ahead  of  the  demand,  and 
partly  because  of  the  delays  in  freight  shipment.  The 
variation  of  prices  according  to  quantity,  as  well  as 
many  other  factors,  affects  the  determination  of  what 
shall  be  the  maximum  and  the  minimum  stock  to  carry 
in  each  line.  The  rental  values  of  floor  space,  the 
amount  of  space  each  line  requires,  the  necessity  of 
displaying  different  sizes  and  colors  within  a  limited 
space,  with  the  result  that  tliere  is  little  room  for  any- 
thing but  samples,  whether  purchases  are  carried  home 
by  the  customer  or  are  sent  thru  the  delivery  depart- 
ment, are  considerations  which  affect  the  decision: 
first,  in  regard  to  whether  all  tlie  stock  sliall  be  kept 
on  the  selling  floor,  or  a  part  shall  be  held  as  reserve 


260  RETAIL  MERCHANDISING 

stock ;  and  secondly,  regarding  the  maximum  and  min- 
imum to  be  carried  in  each  line. 

In  any  case,  however,  the  reserve  stocks  should  be 
reduced  to  the  smallest  amount  consistent  with  the 
rendering  of  good  merchandising  service.  Pass  the 
responsibility  for  carrying  surplus  stocks  back  on  the 
jobber  and  manufacturer,  and  let  them  pass  it  back 
to  those  who  collect  the  raw  material.  Each,  in  turn, 
will  reduce  his  loss  from  slow-moving  stocks. 

4.  Arrangement  of  reserve  stocks. — The  reserve 
stocks  should  be  grouped  according  to  the  general 
plan  of  arrangement  for  the  active  stock  on  the  selling 
floors.  In  a  department  store  the  reserve  stock  of 
each  department  is  placed  by  itself,  generally  in  a 
cage  under  lock  and  key.  In  each  department  the 
"head  of  stock,"  who  is  generally  also  assistant  buyer, 
is  in  charge  of  the  stock  of  the  department.  There 
may  be  a  stock  clerk,  also,  for  the  department,  but 
generally  work  in  the  stock  room  is  done  by  the  regu- 
lar clerks  of  the  department  during  the  early  morning 
hours.  When  goods  are  transferred  from  reserve  to 
active  stock,  a  requisition  is  given  the  person  in  charge 
of  all  the  reserve  stocks,  and  he  deducts  from  his  re- 
serve-stock inventories  the  amount  of  the  reserve  that 
has  been  removed. 

The  stock  of  a  department  is  arranged  according 
to  hnes  rather  than  according  to  manufacturers.  For 
example,  all  the  different  brands  of  talcum  powder 
are  grouped  together.  The  reason  for  this  arrange- 
ment is  largely  psychological.     If  the  goods  of  each 


STOCKKEEPING  261 

maker  were  placed  in  a  group  by  themselves,  the  buyer 
would  be  more  hkely  to  buy,  at  various  times,  all  the 
brands  of  talcum  powder  of  each  prominent  maker, 
largely  because  of  this  prominence.  No  matter  how 
successful  a  manufacturer  may  be,  he  is  certain  to  have 
occasionally  on  his  list,  a  poor  or  slow-selling  article. 
Accordingly,  the  retailer  who  buys  all  the  line  gets 
many  slow-moving  articles;  furthermore,  he  gets  too 
many  competing  hues.  If  all  the  brands  of  talcum 
powder,  for  instance,  are  grouped  together,  irrespec- 
tive of  makers,  the  buyer  is  more  likely  to  get  a  repre- 
sentative assortment  of  the  most  desirable  and  the 
best-selling  goods. 

5.  Active  or  ''forward"  stock. — The  question  of  the 
arrangement  of  the  store,  as  a  whole,  and  of  different 
departments,  was  taken  up  in  chapter  IV  under  the 
subject  of  operation;  the  arrangement  of  the  goods, 
from  the  standpoint  of  display,  will  be  discussed  in 
chapter  VIII  under  the  topics  of  advertising  and  dis- 
play. In  this  chapter,  we  are  concerned  with  the  prob- 
lem of  handling  the  physical  stock  and  of  keeping 
track  of  it.  After  modern  fixtures  for  each  class  of 
stock  have  been  provided,  according  to  the  maximum 
and  the  minunum  amount  which  it  has  been  decided  to 
keep  on  the  selling  floors,  it  is  a  simple  problem  to 
take  care  of  and  keep  track  of  it.  The  makers  of 
modern  store  equipment  have  reduced  the  work  of 
stockkeeping  fully  100  per  cent.  To  keep  the  active 
stock  in  good  condition  is  a  simple  problem,  the  suc- 
cessful solution  of  which,  however,  depends  largely 


263  RETAIL  MERCHANDISING 

on  the  constant  vigilance  of  the  person  in  charge  of 
each  stock. 

The  major  work  of  stockkeeping  is  done  before  the 
store  opens  in  the  morning  and  during  the  early  hours 
of  the  day,  when  shopping  is  at  a  minimum.  During 
the  day  the  clerks  spend  their  spare  time  after  each 
sale  in  straightening  out  stocks.  In  certain  lines,  like 
jewelry,  each  tray  is  put  back  before  another  is 
brought  out.  In  gown  stocks,  girls  follow  the  sales 
clerks  to  put  back  each  article  as  soon  as  the  customer 
is  no  longer  interested  in  it.  Every  article  must  be 
put  in  selling  condition  before  it  is  returned  to  stock. 
Any  damages  must  be  repaired,  and  any  defects  in 
equipment — for  example,  breakages  in  stock  boxes — 
must  receive  immediate  attention.  The  problem  of 
stockkeeping  is  simple,  since  it  requires  only  careful 
attention;  nevertheless,  the  lazy  person  or  the  person 
who  is  content  with  slip -shod  conditions  had  better 
leave  it  alone. 

6.  Importance  of  keeping  track  of  the  stock. — So 
far,  we  have  been  describing  methods  of  handling  the 
stock.  Equally  important  is  the  need  of  knowing  the 
quantity  of  stock  on  hand  in  each  line,  the  style,  the 
color,  and  so  on.  This  knowledge  is  the  only  basis 
for  reorders  and  is  therefore  fundamental  to  all  the 
records  of  the  business;  it  is  gained  by  one  of  two 
methods,  or  by  a  combination  of  both.  The  older 
method — that  of  the  physical  inventory — was,  until 
recently,  considered  the  only  satisfactory  one.  It 
consists  of  taking  an  inventory  at  regular  intervals 


STOCKKEEPING  263 

— general^  annually — of  the  goods  actually  on  hand, 
and  noting  the  value  of  each  article,  as  well  as  the 
total  amount  in  each  hne  and  the  grand  total  of  the 
entire  stock  of  merchandise.  As  previously  remarked, 
goods  should  be  appraised  at  either  the  amount  they 
will  bring,  or  at  the  amount  for  which  they  could  be 
replaced.  If  the  stocks  are  carried  at  retail,  the  mark- 
up should  be  deducted  from  the  appraised  retail  value. 
The  result  is  the  appraised  cost  value. 

The  newer  method  is  the  perpetual,  or  book,  inven- 
tory. When  this  is  used,  a  record  of  purchases  and 
sales  is  kept  in  order  that  the  difference  may  be  com- 
puted to  show  the  amount  on  hand  at  any  given  time. 
Theoretically,  there  is  no  reason  why  this  method 
should  not  be  used  just  as  successfully  in  the  case  of 
merchandise  as  in  the  case  of  funds.  And  many  con- 
cerns are  finding  that  the  practice  is  as  satisfactory  as 
the  theory.  The  Atlantic  and  Pacific  Tea  Company 
requires  each  store  manager  to  account  weekly  for 
each  item  of  stock  that  he  has  received,  down  to  a  sin- 
gle egg,  just  as  they  require  him  to  account  for  each 
penny  he  receives  from  the  sales.  If  an  egg  is  broken 
he  must  save  the  shell  as  a  voucher. 

When  the  perpetual  inventory  is  in  use,  the  periodi- 
cal physical  inventory — whether  weekly,  as  in  some 
grocery  chains,  or  monthly,  as  in  a  cigar  chain,  or 
semi-annually,  as  in  a  department  or  general  store — 
is  used  as  a  check  against  the  book  inventory.  ^Ir. 
Frederick  M.  Ayres,  president  of  T..  S.  Ay  res  and 
Company,  of  Indianapolis,  gives  the  following  inter- 


264  RETAIL  MERCHANDISING 

esting  illustration  of  the  reliance  now  placed  on  cumu- 
lative inventories. 

Until  about  six  or  seven  years  ago,  we  made  a  semi-annual 
physical  inventory  of  our  stocks,  at  cost,  having  no  method 
of  checking  these  inventories  other  than  trying  to  assure  our- 
selves that  the  inventory  itself  was  made  with  proper  care 
and  thoroness. 

The  various  percentages  of  mark-ups,  gross  profits,  mark- 
downs,  etc.,  thruout  the  year  were  only  approximately  ar- 
rived at  by  the  experience  gained  in  the  past  years.  Un- 
der the  system  of  carrying  all  our  figures  at  retail,  and  of 
depending  on  a  cumulative  book  inventory,  these  percentages 
are  now  known  absolutely  and  correctly  at  the  end  of  each 
month. 

The  most  astonishing  fact,  however,  that  was  disclosed  by 
the  cumulative  book  system,  was  that  errors  crept  into 
the  taking  of  a  physical  inventory,  even  under  the  most  care- 
ful scrutiny.  We  found  that  where  it  was  necessary  to 
take  a  stock  over  again,  the  difference  in  the  two  physical  in- 
ventories taken  within  a  very  short  time  was  often  very  large, 
showing  that  under  the  old  system  of  taking  physical  inven- 
tories at  cost,  it  was  impossible  to  be  certain  that  the  final 
figures  were  correct. 

The  advantage  of  being  so  certain  of  the  monthly  stock 
on  hand  was  proved  to  us  two  years  ago.  A  fire  in  the  build- 
ing adjoining  our  main  store  destroyed  part  of  our  stock 
in  the  upper  floors  of  that  building  and  caused  a  consider- 
able smoke  damage  to  the  stock  in  our  main  building.  The 
fire  occurred  on  the  second  day  of  January,  or  just  after  we 
had  completed  taking  our  semi-annual  physical  inventory. 

In  this  case,  all  that  would  have  been  necessary  would 
have  been  to  wait  until  these  inventories  were  extended  and 
recapitulated.  As  this,  however,  would  have  taken  a  period 
of  two  weeks  or  more,  during  which  time  we  would  have 
been  obliged  to  keep  our  store  closed,  the  insurance  com- 
panies immediately  agreed  to  settle  on  the  basis  of  the  stocks 
as  shown  by  our  cumulative  book  inventory  without  waiting 


STOCKKEEPING  265 

to  figure  up  the  physical  inventory,  so  that  the  actual  loss 
of  time  was  cut  down  to  three  days. 

The  discrepancy  between  the  stocks  called  for  by  our 
books  under  the  cumulative  system  of  inventorying  and  that 
called  for  by  the  physical  inventory  averages  about  one  per 
cent  every  six  months.  We  have  therefore  set  up  what  we 
call  a  Merchandise  Depreciation  Account,  and  charge  off 
one-sixth  of  one  per  cent  per  month  to  this  fund. 

Instead  of  invoicing  our  entire  establishment  on  the  first 
days  of  January  and  July,  as  we  formerly  did,  we  now  in- 
voice our  stocks  at  such  times  in  the  year  as  are  best  suited 
for  the  individual  departments.  This  procedure  has  done 
away  with  the  confusion  of  invoicing  our  entire  establish- 
ment semi-annually,  during  which  time  the  departments  are 
bound  to  lose  their  efficiency  more  or  less,  but  instead  allows 
the  different  departments  to  invoice  at  any  time  when  busi- 
ness in  the  department  is  the  slowest.  We  could  not  be  per- 
suaded on  any  account  to  give  up  the  system  of  cumulative 
or  book  inventorying  on  the  retail  basis. 

7.  Preparing  for  physical  inventory. — There  are 
two  general  methods  of  preparing  for  inventory.  The 
first  is  to  take  stock,  and  have  special  sales  afterward ; 
the  other  is  to  clean  out  the  stock  by  means  of  sales 
first,  and  then  take  the  inventory.  Most  merchants 
favor  the  latter  method,  since  it  makes  it  possible  to 
reduce  all  stocks  to  the  minimum  before  taking  inven- 
tory. Of  course,  a  certain  amount  of  buying  is  nec- 
essary because  of  the  fact  that  it  is  considered  poor 
pohcy  to  let  the  supply  of  articles  for  which  there  is 
a  demand  become  exhausted.  Merchants  generally 
try  to  anticipate  such  a  possibility  and  still  buy  as 
lightly  as  possible. 

8.  Preliminary  work. — Within  a  reasonable  num- 

XIX~19 


^66  RETAIL  MERCHANDISING 

ber  of  days  before  the  actual  work  of  inventorying  is 
to  be  begun,  the  clerks  and  salespeople  are  instructed 
to  straighten  up  their  respective  sections  of  the  stock. 
They  are  expected  to  examine  carefully,  sort  and 
count  the  contents  of  each  case,  drawer,  bin,  carton, 
or  whatever  container  the  goods  are  stored  in.  The 
results  of  the  examination  are  written  upon  what  is 
called  a  "first-count  slip,"  which  is  placed  in  the  con- 
tainer with  the  counted  goods.  In  many  stores  the 
number  of  the  container  is  also  noted  on  the  slip. 

It  is  customary  to  use  slips  printed  with  blanks  that 
provide  space  for  filling  in  various  details  such  as 
quantity,  style  number,  selling  price,  cost  number,  and 
whatever  other  details  may  be  considered  necessary. 

9.  Inspecting  stock. — During  stock-taking  the 
goods  are  actually  handled,  in  order  that  there  may 
be  no  misunderstanding  in  regard  to  their  condition. 
In  many  instances  it  has  been  found  that  goods  would 
have  depreciated  if  they  had  been  left  as  they  were 
originally  stored. 

It  is  considered  advisable  to  examine  every  item  in 
the  stock,  to  learn  the  present  value  or  salableness,  and 
to  become  acquainted  with  the  stock  on  hand.  When 
every  article  in  the  house  bears  a  plain  mark,  confusion 
is  avoided;  moreover,  the  marking  of  the  stock  means 
a  saving  in  time  during  inspection,  as  well  as  when 
the  goods  are  being  sold. 

10.  Numbering. — In  order  that  all  the  first-count 
slips  may  be  carefully  accounted  for,  they  are  consecu- 
tively numbered  in  advance.     These  shps  also  bear 


STOCKKEEPING  267 

some  distinguishing  mark  of  the  department  to  which 
they  belong. 

11.  Changes  after  first  count. — Inasmuch  as  the 
counting,  the  measuring  and  all  similar  operations  be- 
gin before  the  actual  work  of  the  inventory  is  really 
under  way,  it  happens  that  after  certain  lots  have  been 
counted,  new  goods  of  that  kind  will  arrive.  Some  of 
the  items  counted  may  be  sold.  In  each  of  these  cases 
the  respective  first-count  slip  is  changed  accordingly. 

12.  Taking  stock  while  business  goes  on. — The  old 
method  of  requiring  the  salespeople  and  those  who 
have  charge  of  the  stock  to  stay  long  after  hours, 
straightening  out  inventories  and  listing  goods  carried 
on  the  shelves,  is  now  a  thing  of  the  past.  The  modern 
method,  which  is^much  better,  permits  the  taking  of 
stock  during  business  hours,  and  while  the  department 
is  busy  selhng.  In  stores  which  maintain  cumulative 
book  inventories,  a  staff  of  people  for  the  physical 
inventories  can  work  from  one  department  to  another 
continuously. 

13.  Plan  of  inventory. — The  preparation  having 
been  completed,  books  are  provided  which  are  ruled 
with  a  sufficient  number  of  columns  to  accommodate 
the  various  headlines  under  which  the  stock  is  to  be 
entered,  as  lot  number,  kind  of  merchandise,  sizes, 
types,  and  any  other  heading  that  may  indicate  an  im- 
portant feature  of  record  to  be  kept. 

Loose-leaf  sheets  are  ordinarily  used;  these  sheets, 
which  are  bound  and  covered,  contain  the  number  of 
pages  necessary  for  the  listing  of  each  classification 


268  RETAIL  MERCHANDISING 

of  goods.  In  stores  where  a  number  of  people  are 
engaged  in  making  the  inventory,  it  is  considered 
essential  to  use  a  number  of  these  small  books  in 
order  that  entries  may  be  made  simultaneously.  It  is, 
of  course,  important  to  use  these  books  not  only  in 
connection  with  the  preliminary  work  of  entering  on 
the  sheet  while  calling  off  the  amounts,  but  also  in 
connection  with  the  later  work  of  figuring  and  re- 
figuring  the  items. 

14.  Subdividing  the  inventory. — It  is  desirable  to 
separate  each  individual  department's  inventory  into 
as  many  parts  as  possible,  up  to  the  point  where 
further  division  would  mean  confusion.  This  subdi- 
vision of  the  inventory  makes  it  possible  to  catch  mis- 
takes easily. 

Each  page  or  sheet  of  the  inventory  is  footed  inde- 
pendently, no  matter  what  system  is  employed ;  totals, 
or  total  sheets,  are  not  carried  forward  in  the  ordinary 
way.  This  plan  of  keeping  separate  totals  makes  it 
easier  to  locate  mistakes  and  check  whatever  part  of 
the  work  may  need  checking. 

REVIEW 

Why  do  merchants  frequently  give  less  attention  to  the  care  of 
their  merchandise  than  of  their  cash? 

Describe  the  processes  which  should  be  followed  when  mer- 
chandise is  received  by  the  store  and  marked  up  for  selling. 

Are  reserve  stocks  desirable,  and  under  what  conditions  are 
they  necessary? 

Explain  the  difference  between  a  periodical  and  perpetual  in- 
ventory?    How  do  they  supplement  each  other? 

Describe  the  method  of  operating  the  perpetual  inventory  and 
the  physical  inventory. 


CHAPTER  VIII 

ADVERTISING  AND  DISPLAYS 

1.  What  is  retail  advertising? — Retail  advertising 
includes  everything  done  to  create  public  sentiment 
favorable  to  a  retail  store,  to  di'aw  trade  to  it,  and  to 
make  customers  satisfied  with  their  purchases.  Some 
merchants  say  that  they  do  not  believe  in  advertising. 
If  they  make  this  statement  honestly,  they  have  a  mis- 
taken idea  of  what  advertising  is  and  of  what  it  does. 
A  retailer  who  says  he  does  not  believe  in  retail  adver- 
tising refers  usually  only  to  newspaper  advertising. 
Newspapers  are  valuable  advertising  mediums  for  re- 
tail stores,  but  they  are  by  no  means  the  only  ones. 
Every  retail  merchant  advertises  when  he  puts  a  sign 
in  front  of  his  store.  If  he  is  a  good  business  man 
he  also  dresses  his  show  windows  attractively,  with  the 
idea  of  attracting  trade.  Furthermore,  he  displays 
his  goods  on  his  counters  and  shelves  so  as  to  empha- 
size the  good  points  of  his  s^ock.  And  he  often  calls 
attention  to  goods  by  means  of  counter  cards,  wall 
signs,  display  racks  and  demonstrations.  Finally,  the 
good  retail  store  is  permeated  by  an  atmosphere  of 
courteous  service,  which  in  itself  possesses  a  definite 
advertising  value.  Every  man  who  sells  a  dollar's 
worth  of  goods  is  an  advertiser,  whether  he  knows  it 

269 


270  RETAIL  MERCHANDISING 

or  not.  If  he  did  not  believe  in  advertising,  he  would 
tear  down  his  signs,  board  up  his  windows,  cover  up 
his  shelves,  make  kindling  of  the  store  fixtures,  and  do 
business  with  customers  thru  a  hole  in  the  wall. 

2.  Starting  right. — Retail  advertising  takes  many 
forms.  There  are  many  things,  both  inside  and  out- 
side a  store,  which  are  really  in  the  nature  of  adver- 
tising, and  which  contribute  to  the  effectiveness  of 
all  store  publicity.  Advertising  begins  much  further 
back  than  the  writing  of  copy  and  the  buying  of  news- 
paper space.  Before  any  advertising  can  be  really 
effective,  the  advertiser  must  be  sure  that  his  store  is 
worthy  of  the  trade  he  wishes  to  attract.  Unless  a 
store  is  attractive,  unless  it  is  so  well-arranged  that 
the  visitor  can  shop  in  comfort,  unless  it  is  well-lighted, 
well-heated,  and  well-located,  no  newspaper  adver- 
tising in  its  behalf  can  be  successful. 

3.  Advertising  and  store  service. — Satisfactory 
physical  conditions  in  a  store,  however,  are  not  the 
only  things  the  retailer  must  provide  before  he  under- 
takes printed  advertising.  The  store  service  must  be 
right  if  trade,  attracted  by  advertising,  is  to  be  re- 
tained. The  attitude  toward  the  public  must  be  one 
of  courtesy  on  the  part  of  every  employe.  It  must  be 
the  expression  of  a  genuine  spirit  of  helpfulness — a 
real  desire  to  serve  the  community.  The  right  store 
service  will  provide  a  hearty  welcome  for  every  store 
visitor,  it  will  embody  a  policy  of  "satisfaction  guar- 
anteed or  money  refunded,"  and  it  will  provide  ac- 
commodations, conveniences    and  comforts  for  the 


ADVERTISING  AND  DISPLAYS  2T1 

customers.  Finally,  good  store  service  will  give  to 
customers  all  the  information  that  they  want  about 
the  goods  they  buy.  Good  salesmanship,  in  other 
words,  is  an  exceedingly  important  factor  in  the  serv- 
ice of  any  store. 

4.  Value  of  the  newspaper. — If  the  conditions  are 
such  as  to  insure  the  satisfaction  of  customers,  the 
retailer  has  a  choice  of  the  ways  by  which  to  carry  his 
story  to  the  public.  For  many  retail  stores  the  most 
important  advertising  medium  is  the  newspaper.  The 
city  dealer  who  is  alive  to  his  opportunities  knows 
what  newspaper  advertising  can  do  for  him.  Some 
merchants  in  the  smaller  towns,  however,  have  not  yet 
learned  its  value.  The  country  merchant  sometimes 
says:  "Why  should  I  advertise  in  the  newspaper? 
Everybody  knows  me."  Everybody  maj"  know  him, 
but  everybody  does  not  know  his  goods  and  his  serv- 
ices. His  constant  effort  must  be  directed  toward 
making  the  public  know  more  about  his  store  and  his 
goods.  Everything  he  does  in  a  business  way  adver- 
tises him  and  his  store,  either  favorably  or  unfavor- 
ably. By  his  own  personal  efforts  he  is  constantly 
trying  to  induce  more  people  to  trade  with  him  and  to 
make  his  old  customers  buy  more  goods.  Newspaper 
advertising  enables  him  to  do  on  a  large  scale  exactly 
what  he  is  continually  doing  personally  on  a  small 
scale.  It  enables  him  to  tell  his  trade  story  to  a  larger 
audience  than  he  could  possibly  reach  thru  his  per- 
sonal efforts  alone. 

5.  Intermittent  and  continual  advertising. — Some 


2T2  RETAIL  MERCHANDISING 

merchants  who  are  convinced  of  the  power  of  news- 
paper pubhcity  are  not  convinced  of  the  necessity  of 
advertising  continually.  Intermittent  advertising  is 
better  than  no  advertising  at  all,  but  it  is  not  the  best 
kind.  The  best  advertising  is  that  which  continues 
thru  good  seasons  and  bad  seasons,  and  which  persist- 
ently keeps  the  store  and  its  goods  before  the  public. 
No  reader  of  a  newspaper  sees  all  the  advertisements 
in  any  one  issue,  and  no  store  that  advertises  only  oc- 
casionally can  hope  to  have  its  advertisements  come 
to  the  attention  of  all  the  people  it  wishes  to  reach. 
The  store  that  impresses  itself  upon  the  pubHc's  con- 
sciousness in  such  a  way  as  to  insure  its  permanent 
success  is  the  one  that  tells  its  story  continually.  The 
intermittent  advertiser  runs  the  risk  of  having  his 
competitor  talk  when  he  is  silent. 

6.  What  to  advertise. — It  is  a  mistake  for  a  dealer 
to  refrain  from  advertising  until  he  has  a  special  price 
offer  to  make.  Advertising  a  "sale"  is  the  least  profit- 
able kind  of  advertising.  Advertising  is  best  used  to 
bring  people  into  a  store  to  buy  regular  goods  at  regu- 
lar prices,  rather  than  special  goods  at  sales  prices. 
There  is  no  worthy  store  in  which  there  are  not  many 
matters  that  could  be  made  the  subject  of  interesting 
advertisements.  The  service  of  the  store — that  is, 
the  special  features  of  this  service  as  compared  with 
other  stores — is  something  a  store  may  advertise.  It 
is  essential,  however,  that  the  service  be  presented  in 
an  interesting  wa}^  The  public  is  not  primarily  in- 
terested in  anything  that  does  not  pertain  to  its  own 


ADVERTISING  AND  DISPLAYS  273 

welfare  and  happiness.  This  fact  renders  obvious 
the  necessity  that  a  store  make  the  advertisements  of 
its  service  interesting  to  the  pubhc. 

7.  Must  each  advertisement  pay  for  itself? — Some 
merchants  make  the  mistake  of  believing  that  every 
advertisement  must  pay  for  itself.  They  should  not 
expect  this  any  more  than  they  expect  their  invest- 
ment in  an  attractive  store  front  to  pay  for  itself  in 
increased  trade  within  one  day  or  within  one  week. 
Advertising  is  an  investment.  It  is  sales  insurance. 
A  traveling  salesman  calls  on  many  people.  He  does 
not  make  a  sale  every  time  he  makes  a  call,  but  he 
does  not  for  that  reason  refrain  from  making  many 
calls.  He  knows  that  the  more  often  he  tells  his  sales 
story,  the  more  sales  he  will  make.  The  seed  sown 
on  one  trip,  even  if  not  immediately  fruitful,  may  re- 
sult in  a  harvest  of  orders  on  future  trips.  So  it  is 
with  advertising.  The  power  of  advertising  is  cumu- 
lative. Its  influence  may  be  felt  perhaps  weeks  or 
even  months  after  its  publication.  The  dealer  may 
be  sure  that  eveiy  good  advertisement  pays.  Keep- 
ing everlastingly  at  it  brings  rewards  in  advertising  as 
in  every  other  effort. 

8.  Store  news. — Retail  advertising  is  store  news. 
This  fact  is  not  understood  by  the  retailer  who  thinks 
he  is  advertising  when  he  pays  for  a  standing  "card" 
like  this: 

John   Smith 

Still  at  the  same  old  stand 

Good  groceries  at  fair  prices 

Give  us  a  trial 


274  RETAIL  MERCHANDISING 

This  is  not  advertising;  it  is  a  gift  to  the  publisher 
of  the  paper.  Much  ineffective  advertising  is  due 
to  a  lack  of  knowledge  of  the  true  function  of  news- 
paper publicity.  Some  advertisers  seem  to  think  that 
readers  seize  the  local  newspaper  and  turn  the  pages 
in  an  attempt  to  find  out  what  dealers  in  town  sell 
groceries.  They  forget  that  people  read  the  news- 
paper because  they  expect  to  find  news  in  it,  and  that 
anything  that  is  not  news  stands  but  a  small  chance 
of  being  read. 

9.  Change  copy  often. — If  advertising  is  news  it 
should  be  treated  like  any  other  kind  of  news.  No 
editor  would  permit  the  same  local  story  to  appear  in 
the  same  place  in  his  paper  in  two,  three,  six  or  fifty 
editions  in  succession.  An  editor,  however,  will  often 
encourage  the  running  of  a  piece  of  store  news  in  the 
same  unchanged  form  from  two  to  fifty  consecutive 
times.  The  local  store  news  that  can  be  used  effect- 
ively more  than  once  or  twice  is  rare  indeed.  No 
really  successful  retail  advertiser  permits  his  copy  to 
appear  again  and  again  in  endless  reiteration  of  the 
same  story.  Each  piece  of  copy  ordinarily  serves  its 
purpose  once,  and  once  only. 

10.  Put  interest  into  copy. — Advertisements  must 
be  interesting  if  they  are  to  be  read.  No  real  news- 
paper ever  published  a  news  item  like  this:  "Some 
people  came  to  town  from  Milwaukee  yesterday." 
Such  a  statement  is  wholly  without  interest,  because 
it  is  general  rather  than  specific.  Yet  the  store  news 
columns  frequently  carry  just  as  uninteresting  state- 


ADVERTISING  AND  DISPLAYS  275 

ments.  For  example:  "A  new  line  of  goods  just 
in.  Come  and  see  them."  "A  shipment  of  fm*niture 
just  received."  These  statements  are  no  more  inter- 
esting than  the  bare  statement,  "Some  people  came  to 
town  from  JMilwaukee  yesterday." 

To  be  interesting,  the  news  item  referred  to  should 
read  somewhat  as  follows :  Jones  and  Thomas  Smith, 
former  residents  of  this  city,  came  from  Milwaukee 
Sunday  to  spend  the  day  with  friends."  The  state- 
ment must  be  specific.  In  like  manner,  instead  of  the 
bare  announcement,  "A  new  shipment  of  furniture 
has  been  received,"  there  must  be  specific  statements 
about  the  furniture:  "New  furniture,  beautiful, 
sturdy  and  inexpensive.  JNIahogany  tables  for  the 
library — massive,  strong,  and  handsome — unusual 
values  at  $25.  Divans  upholstered  to  match  that  par- 
lor rug,  with  springs  that  delight  the  tired  body — just 
what  you  have  been  looking  for,  and  only  $60." 

11.  Individuality  in  copy  and  display. — It  is  true 
that  the  copy  in  the  advertisement  must  be  interesting 
if  it  is  to  be  read.  But  what  if  the  advertisement  is 
not  even  noticed?  What  is  there  about  the  adver- 
tisement to  attract  the  attention  of  the  casual  reader? 
Individuality  in  the  display,  "something  different"  in 
the  copy  and  the  layout  of  the  advertisement,  help  to 
secure  the  necessary  attention.  Even  if  one  of  Lord 
and  Taylor's  advertisements  should  not  bear  the  firm's 
name  many  would  still  identify  it  because  of  the  type 
display,  the  border  and  the  general  atmosphere  of 
the  copy.     The  large  department  stores  of  the  country 


276  RETAIL  MERCHANDISING 

have  come  to  realize  the  vakie  of  creating  an  at- 
mosphere of  individuahty  around  their  advertising. 
They  use  the  same  border,  type  display,  arrangement 
and  stjde  in  their  copy  day  after  day  until  finally  they 
have  succeeded  in  creating  individuality  for  their  ad- 
vertising and  consequently  for  their  store.  John 
Wanamaker's,  B.  Altman's  and  Lord  &  Taylor's 
advertising  are  excellent  examples  of  individuality 
in  both  copy  and  display.  And  the  same  results 
can  be  obtained  by  the  small  general  store,  no  matter 
what  the  size  of  the  community  may  be. 

12.  Letters  and  circulars. — Altho  newspapers  are 
the  most  valuable  and  the  most  widely  used  advertis- 
ing mediums  for  retail  stores,  in  smaller  places  there 
are  often  no  local  papers,  and  in  larger  ones  some 
stores  cannot  use  them  advantageously,  because  they 
are  situated  so  far  away  from  the  central  shopping 
district  that  advertising  would  be  unprofitable.  The 
store  that  cannot  make  effective  use  of  newspaper  ad- 
vertising is  by  no  means  cut  off  from  all  advertising 
opportunities.  Furthermore,  stores  which  use  the 
newspapers  frequently  wish  to  supplement  newspaper 
advertising  with  other  kinds  of  publicity.  There  are 
many  mediums  which  can  be  used  in  such  circum- 
stances. 

Among  these  mediums  first  place  should  be  given 
to  letters  from  the  storekeeper  to  his  old  customers 
and  to  possible  customers  whose  trade  he  wishes  to 
secure.  Circular  letters  or  personal  letters  carefully 
prepared  and  containing  a  real  sales  story,  sent  at 


ADVERTISING  AND  DISPLAYS  277 

frequent  intervals,  are  among  the  most  effective  kinds 
of  publicity  the  retail  merchandiser  can  use.  Attrac- 
tively printed  circulars,  mailed  to  a  carefully  selected 
list  of  names,  serve  often  the  same  purposes.  Circu- 
lars distributed  by  hand  and  left  on  doorsteps  are  sel- 
dom effective.  To  accomplish  their  purpose  circulars 
must  usually  have  back  of  them  the  prestige  of  the 
mails. 

13.  Store  papers. — Many  country  stores  that  are 
unable  to  use  newspapers,  publish  store  papers  of 
their  own  and  consider  the  use  of  them  profitable. 
These  store  papers  are  small  periodicals,  published  at 
weekly  or  other  intervals,  which  contain  items  of  in- 
terest to  residents  of  the  neighborhood,  and  which  also 
carry  well-displayed  and  well-written  advertisements 
of  the  goods  to  be  found  in  the  store.  There  are  also 
the  small  catalogs  and  pamphlets,  which  are  similar  to 
the  store  papers.  Some  retailers  send  each  week  to 
their  mailing  list  a  small  folder  that  describes  some 
particular  line  of  goods  or  service  peculiar  to  their 
respective  stores.  Such  a  folder  takes  the  place  of 
a  large  and  expensive  catalog,  which  is  too  costly  for 
the  average  retailer. 

14.  Other  mediums. — There  are,  in  addition  to  the 
advertising  mediums  already  described,  many  others 
available  for  the  small  advertiser.  The  telephone 
provides  an  admirable  opportunity  for  the  live  retailer 
to  tell  his  story  personally  to  a  large  number  of  pos- 
sible customers.  Street-car  cards  are  also  used  ad- 
vantageously by  the  city  neighborhood  store  situated 


278  RETAIL  MERCHANDISING 

on  a  car  line.  In  the  smaller  towns,  cards  in  the  in- 
terurban  cars  serve  a  useful  purpose  if  they  are  care- 
fully prepared  and  frequently  changed. 

15.  Use  of  dealer  helps. — Almost  every  retailer  in 
the  United  States  receives  countless  numbers  of  so- 
called  manufacturers'  aids  or  dealer  helps.  ]Many 
dealers  can  testify  as  to  their  inability  to  use  all  the 
helps  they  receive.  Then,  too,  some  of  this  material 
is  so  poor  in  quality  that  it  is  unfit  for  display 
in  the  average  dealer's  window  or  store.  When  this  is 
the  case,  the  retailer  should  notify  those  manufactur- 
ers or  jobbers  who  are  sending  unsatisfactory  helps. 
By  doing  so  he  will  assist  in  eliminating  the  tremen- 
dous waste  in  this  kind  of  advertising  material. 

On  the  other  hand,  there  are  many  manufacturers' 
and  jobbers'  displays  that  deserve  to  be  intelhgently 
used  by  most  retailers.  The  retailer  who  receives 
them  should  be  glad  of  the  opportunity  thus  afforded 
him  to  link  his  own  advertising  campaign  with  that  of 
the  manufacturer.  He  is  saved  the  expense  of  pre- 
paring his  own  window  display.  Good  displays  can 
always  be  used  to  advantage. 

Retail  advertising  should  express  the  individuality 
of  the  advertiser  and  of  his  store.  If  that  individu- 
ality is  of  the  sort  to  attract  trade,  intelligent  adver- 
tising is  certain  to  bring  results. 

16.  Disjjlay  advertising. — It  is  generally  recog- 
nized that  the  average  customer  is  influenced  in  mak- 
ing purchases  by  advertising  or  by  seeing  goods  dis- 
played in  windows,  show  cases  or  on  a  counter.     Most 


ADVERTISING  AND  DISPLAYS  279 

retailers  pride  themselves  on  the  fact  that  they  do  not 
solicit  sales  thru  personal  salesmanship,  house-to-house 
canvassing,  or  thru  direct  appeal  to  the  passer-by. 
The  day  of  beckoning  a  person  to  enter  a  store,  or  of 
urging  the  person  once  in  the  store  to  buy,  is  gone. 
Therefore  it  is  apparent  that  the  selling  success  of  the 
store  depends  largely  on  advertising  and  on  displays. 
This  latter  term  refers  specifically  to  the  display  of 
merchandise  both  inside  the  store  and  in  the  windows. 
Hence  the  term,  display  advertising. 

17.  Guiding  imnciples  that  govern  interior  dis- 
plays.— The  first  principle  to  observe  in  arranging 
displaj^s  is  that  goods  should  be  displayed  within  the 
natural  range  of  vision  of  a  person  passing  thru  the 
store.  The  customer  cannot  see  goods  that  are  more 
than  seven  or  eight  feet  above  the  floor,  without  cran- 
ing his  neck,  except  at  long  range.  He  is  not  likely 
to  see  them  at  all  when  the  goods  are  on  the  floor  or 
only  two  or  three  feet  above  it.  Most  people  can  con- 
centrate on  only  a  few  objects  at  one  time.  Since  this 
is  true,  it  is  desirable  to  display  only  a  few  allied  ob- 
jects in  any  one  group. 

Everything  in  the  display  should  be  harmonious — 
the  assortment  of  goods,  colors,  sizes,  utility,  price, 
range  and  the  like.  Jarring  effects  of  anj^  kind  are 
undesirable. 

The  whole  display  should  be  arranged  so  as  to  pre- 
sent a  complete  selling  campaign.  It  should  so  at- 
tract the  attention  that  the  passer-by  will  stop  and 
look;  it  should  create  enough  desire  to  lead  him  to  in- 


280  RETAIL  MERCHANDISING 

quire  concerning  it,  and  it  should,  if  possible,  con- 
vince the  customer  that  he  wants  the  merchandise. 
The  salesperson  may  then  stimulate  the  customer  to 
action,  by  asking  permission  to  show  the  customer  the 
goods.  An  entire  sales  appeal  is  in  this  way  con- 
summated. 

Displays  should  be  changed  frequently — the  ar- 
rangement of  the  store  as  a  whole,  as  well  as  the 
display  of  goods  in  each  part  of  it.  People  get  tired 
of  seeing  the  same  things  year  in  and  j^ear  out.  Real- 
izing this  fact,  shrewd  merchants  spend  considerable 
sums  in  moving  things  about  occasionally  and  in 
changing  the  arrangement  of  the  store  equipment.  A 
customer  is  sometimes  annoyed  to  find  a  department 
moved  to  some  other  part  of  the  building,  but  the  ad- 
vantage of  a  change  more  than  counterbalances  this 
occasional  resentment. 

18.  Aids  to  interior  displays. — Reference  has  al- 
ready been  made  in  the  chapter  on  Buying  to  the 
necessity  of  correct  arrangement  of  departments  or 
lines.  This  is  really  a  form  of  interior  display,  for 
often  it  is  the  merchandise  itself  that  is  the  attracting 
force.  Therefore,  good  display  work  must  begin  with 
effective  arrangement  of  the  store  as  a  whole,  includ- 
ing the  use  of  modern  fixtures  and  other  equipment 
for  displaj'^ing  the  merchandise. 

Next  comes  the  use  of  display  racks  and  forms  and 
of  signs  and  counter  cards.  It  is  only  within  recent 
years  that  dealers  have  learned  the  superior  value  of 
"selling"  signs  as  compared  with  "price"  signs;  yet 


ADVERTISING  AND  DISPLAYS  281 

it  costs  little  when  making  a  sign,  to  add  a  bit  of  sell- 
ing argument — as,  for  instance,  the  reason  for  the 
special  price. 

Finally,  there  are  the  general  interior  displays.  It 
is  surprising  to  see  the  number  of  blank  and  unat- 
tractive walls  and  unsightly  corners  in  most  stores. 
There  are  enormous  possibilities  for  displays  in  ele- 
vators, on  stairways  opposite  elevator  entrances,  and 
at  such  other  vantage  points  as  balconies  and  stair 
landings.  A  store  can  as  easily  be  a  thing  of  beauty 
thruout  all  its  selling  departments  as  any  private 
home.  Rugs,  lamps,  pictures  and  the  like  need  not 
all  be  in  their  respective  sections.  In  fact,  they  sell 
better  when  displayed  individually  with  other  things 
than  when  grouped  together  in  departments.  Cus- 
tomers travel  long  distances  to  see  the  Easter  decora- 
tions at  INIarshall  Field's  and  Wanamaker's;  and  the 
things  they  admire  are  the  things  that  are  for  sale. 
Therefore,  the  interior  displays  serve  a  double  pur- 
pose, in  that  they  produce  an  impression  on  the  public 
that  results  in  more  sales,  and  also  help  to  bring 
people  to  the  store.  When  they  are  there,  the  display 
often  makes  them  customers. 

19.  Window  displays. — Everything  that  has  been 
said  regarding  interior  displays  applies  equally  well 
to  window  displays.  To  build  window  displays  is 
much  easier  than  to  arrange  interior  displays,  because 
the  space  is  designed  for  display  and  nothing  inter- 
feres with  the  most  effective  grouping  of  the  goods. 
Light,  background  and  floors  lend  themselves  readily 

XIX-20 


282  RETAIL  MERCHANDISING 

to  window  displays ;  while  aisles,  counters,  pillars  and 
the  necessity  for  allowing  space  for  both  customers 
and  clerks,  interfere  with  effective  interior  displays. 
Manufacturers  and  jobbers  are  so  anxious  to  cooper- 
ate in  window-trimming  that  much,  if  not  all,  of  the 
equipment  can  be  obtained  ready-made  and  gratis. 

It  is  easy  to  study  the  display  methods  of  most  suc- 
cessful stores.  It  is  not  so  easy  to  find  out  the  buying 
methods  or  the  accounting  methods  of  a  merchant,  for 
he  frequently  considers  these  a  part  of  his  stock  in 
trade.  But  his  display  methods  he  cannot  hide.  The 
more  they  are  studied  the  better  he  likes  it,  because, 
like  his  advertising  proper,  they  are  only  successful 
when  they  attract  enough  attention  and  arouse  enough 
interest  to  get  the  customer  into  the  store.  The  more 
they  are  talked  about,  the  more  nearly  will  they  ac- 
complish this  purpose,  providing  they  create  the  de- 
sired impression. 

REVIEW 

In  its  most  general  sense,  what  would  you  include  under  the 
advertising  of  a  retail  store? 

What  are  the  prerequisites  of  successful  printed  advertising? 

Describe  the  best  methods  for  retail  stores  to  use  in  news- 
paper advertising  and  the  mistakes  which  they  should  avoid. 

How  may  direct  advertising  be  effectively  used?  What  are 
store  papers  ? 

Discuss  dealers'  helps  and  their  usefulness  to  the  retailer. 

State  the  most  important  considerations  in  arranging  interior 
displays. 

What  advantages  have  window  displays  over  interior  displays? 


CHAPTER  IX 

DEPARTMENT  STORE  AND  SPECIALTY  SHOP 

1.  Point  of  view. — The  general  discussion  of  retail 
methods  in  the  preceding  eight  chapters  has  been 
mainly  from  the  point  of  view  of  the  general  store, 
as  it  seemed  the  best  type  for  the  purpose.  In  the 
remaining  chapters  it  is  intended  to  take  up  each  type 
of  store  and  survey  it  as  a  unit  so  that  the  reader  may 
get  a  definite  idea  of  how  each  type  is  organized  and 
operated.  It  will  readily  be  seen  that  the  method 
must  be  dependent  on  the  type  of  store  and  the  condi- 
tions under  which  it  is  operated,  and  that  methods  suit- 
able for  one  type  are  not  adapted  to  another. 

2.  Development  of  the  department  store. — The 
general  store  developed  as  the  country  was  settled. 
Directly  after  the  Civil  War,  as  prosperity  returned, 
the  department  store  arose.  It  is  only  an  enlarged 
general  store,  departmentized. 

Therefore,  in  our  discussion  of  department  stores 
the  modifications  from  the  methods  of  the  general 
store  which  is  fully  departmentized  are  few.  What 
differences  there  are  result  from  the  increased  size. 
The  general  store  seldom  does  a  business  over  $100,000 
annually  tho  there  are  a  few,  such  as  Garver  Brothers 
in  Strassburg,  Ohio,  which  do  a  business  of  half  a 
million.     When  the  store  gets  larger,  the  simple  de- 

283 


284  RETAIL  MERCHANDISING 

partmentization,  applying  only  to  the  arrangement  of 
stocks  and  segi-egation  of  accounts  is  insufficient,  and 
each  department  must  be  run  as  a  separate  store  with 
a  department  manager. 

3.  Selling  field  and  policies. — Consequently,  the 
method  of  analyzing  the  selling  field  and  the  competi- 
tion, and  of  determining  the  merchandising  policies 
remains  the  same  for  the  department  store.  In  fact 
some  of  the  best  work  of  this  sort  has  been  done  by 
such  department  stores  as  William  Filene's  Sons  Com- 
pany of  Boston,  and  various  others  scattered  thru- 
out  the  United  States.  In  other  cases  equally  good 
work  has  been  done  for  department  stores  by  adver- 
tising agencies,  as  a  basis  for  planning  their  adver- 
tising campaigns. 

4.  Organization  and  financing  of  department  stores. 
— The  discussion  of  organization  and  the  organization 
chart  given  in  Chapter  III  will  apply  equally  as  well 
to  a  small  department  store,  and  with  further  depart- 
mentization  and  subdivision  of  executive  functions,  to 
a  department  store  of  any  size. 

Nor  need  any  further  comment  be  added  upon  the 
financing  of  the  store  because  the  increased  size  simply 
intensifies  the  problem.  There  are  also  compensat- 
ing advantages  from  size;  for  instance,  a  big  store 
becomes  so  generally  known  thruout  the  country  as 
to  make  it  possible  to  sell  its  commercial  paper  in 
any  part  of  the  country.  Manufacturers  are  so  anx- 
ious to  sell  large  stores  that  they  will  sometimes  offer 
as  an  inducement  greater  discounts  or  longer  terms 


DEPARTMENT  AND  SPECIALTY  STORES      285 

and  this  makes  the  financing  of  the  store  less  diffi- 
cult. At  the  same  time,  the  large  department  stores 
are  better  equipped  to  handle  collections  from  their 
customers,  and  are  more  independent  in  this  matter 
than  the  average  general  or  specialty  store.  This,  of 
course,  facilitates  the  use  to  which  their  working  capi- 
tal can  be  put  because  it  is  kept  moving  all  the  time. 

5.  Operating  the  department  store. — Size  has  a 
disadvantage  in  operating  the  department  store  for 
it  is  difficult  to  get  the  new  recruit  to  do  things  the 
way  the  proprietor  would  like  to  have  them  done. 
The  spirit  of  the  organization  has  to  travel  so  far 
from  the  general  manager  to  the  salespersons  that 
it  is  weakened  by  the  time  it  reaches  them,  and  they 
do  not  feel  its  importance.  Nor  could  it  be  expected, 
even  if  the  general  manager  took  time  personally  to 
train  an  eight-dollar  salesgirl,  that  she  could  appre- 
ciate, much  less  follow,  the  ideals  and  policies  devel- 
oped by  the  eight-hundred-dollar-a-week  manager. 
As  a  result  it  takes  all  the  ingenuity  of  the  manager 
with  his  big  financial,  merchandising  and  advertising 
power  to  prevent  the  salesgirl  from  driving  away  the 
business  which  he  has  taken  so  much  pains  to  bring  in. 
But  conditions  of  this  sort  are  improving,  thanks  to 
the  elaborate  systems  for  employment  and  training. 

A  great  many  interesting  problems  arise  in  con- 
nection with  the  operation  of  the  department  store. 
One  is  that  of  speeding  up  the  service  so  as  to  com- 
plete each  sale  more  promptly.  It  is  a  hard  problem 
to  solve  because  of  the  elaborate  system  necessary  to 


286  RETAIL  MERCHANDISING 

do  this.  Some  concerns  have  adopted  specialty-shop 
methods,  such  as  allowing  certain  clerks  in  certain 
departments  to  deliver  charged  goods  without  wait- 
ing to  have  the  charge  authorized  by  the  credit  de- 
partment. In  another  store  an  enlarged  price  ticket 
is  used,  a  part  of  which  serves  also  as  a  sales  slip  so 
that  no  sales  sHp  is  necessary.  More  and  more  de- 
partment stores  are  giving  up  the  unit  operations  in 
which  several  persons  handle  the  sale,  including  both 
merchandise,  sales  slip  and  money,  and  are  requiring 
one  or  two  people  to  do  it  all,  in  order  to  speed  up  the 
service  to  the  customer. 

6.  Delivery  system, — There  is  another  serious  prob- 
lem in  the  delivery  system.  The  demands  made  upon 
it  both  as  to  the  ratio  of  "sent"  to  "taken"  articles 
and  the  increased  cost  of  each  delivery  are  making 
the  expense  a  greater  burden  each  year.  It  seems 
probable  that  some  system  of  direct  charge  for  the 
delivery  of  each  package  will  be  introduced. 

From  an  operating  standpoint,  the  delivery  prob- 
lem is  becoming  easier  with  the  improvements  in  mo- 
tor trucks  and  automatic  carriers  in  the  store  itself. 
Where  accurate  cost  figures  are  kept  by  stores,  the 
delivery  expense  varies  from  five  to  seven  cents  for 
each  package.  The  method  of  handling  packages 
within  the  store  has  become  easier  with  the  installa- 
tion of  modern  equipment  such  as  gravity  conveyers, 
belt  conveyers,  spiral  shutes,  to  say  nothing  of  freight 
elevators  capable  of  carrying  a  ten-ton  truck  to  the 
top  floor  where  it  may  be  loaded  with  a  suite  of  furni- 


DEPARTMENT  AND  SPECIALTY  STORES      287 

ture  without  bringing  each  article  to  the  delivery  room 
in  the  basement. 

7.  Mail-order  departments. — The  function  of  the 
mail-order  department  is  to  act  as  agent  of  the  cus- 
tomer. Therefore,  each  order  as  it  is  received  is  as- 
signed to  a  mail-order  shopper,  who  goes  to  the  coun- 
ters just  as  customers  do  and  buys  the  goods  which 
have  been  ordered  by  mail.  The  goods  are  sent  thru 
the  regular  delivery  department. 

Catalogs  and  special  letters  are  used  to  attract 
business.  Sometimes  a  special  stock  of  merchandise 
is  used  for  mail-order  purposes.  The  object  in  doing 
this  is  to  guarantee  a  supply  of  the  goods  offered  in 
the  catalog.  If  these  goods  were  also  offered  over 
the  counter  and  proved  especially  attractive,  every 
article  might  be  bought  up  before  the  first  mail  order 
came  in.  In  fact,  this  has  happened  so  frequently 
that  most  department  stores  maintain  special  stocks 
in  lines  such  as  women's  wear,  in  which  style  plays  so 
important  a  part  in  the  selection  that  a  substitution 
is  impossible. 

8.  Merchandise  office. — Theoretically,  in  a  depart- 
ment store  each  buyer  should  be  able  to  merchandise 
his  own  department;  but  few  buyers  are  also  mer- 
chants in  the  broad  sense  of  the  word.  Buyers  are 
generally  opportunist,  while  a  merchant  must  be  con- 
structive. Merchandising  offices  are  created  because 
department  stores  contain  too  many  buyers  and  too 
few  merchants. 

The  merchandising  office  is  the  safety  valve  of  the 


288  RETAIL  MERCHANDISING 

modern  department  store.  As  such  stores  are  organ- 
ized today  it  is  an  economic  necessity.  When  prop- 
erly organized  and  intelhgently  administered  it  is  the 
greatest  determining  factor  in  the  success  or  failure 
of  the  business. 

9.  Advertismg  practice. — Concurrently  with  the 
development  of  the  department  store,  came  the  rise 
of  advertising.  The  proprietor  himself  usually  did 
the  merchandising  but  he  had  neither  the  time  nor  the 
ability  to  look  after  the  advertising.  Consequently, 
he  appointed  an  advertising  manager  as  one  of  his 
first  assistants,  on  an  equal  basis  with  the  superin- 
tendent and  the  records  manager.  With  the  recent 
development  of  the  merchandise  manager  as  one  of 
the  first  officials,  there  has  developed  in  many  stores 
a  point  of  conflict  between  the  merchandising  and 
advertising  functions.  The  advertising  is  really  only 
another  form  of  selling.  It  makes  a  general  appeal 
while  the  over-the-counter  selling  is  personal. 
Therefore,  if  the  merchandise  manager  is  to  have 
charge  of  both  the  buying  and  selling  function,  it  is 
logical  that  he  should  have  supervision  of  the  ad- 
vertising. That  is  undoubtedly  the  tendency  in  de- 
partment-store organization  at  the  present  time,  and 
the  same  conditions  apply  to  the  supervision  of  in- 
terior and  window  displays,  since  the  latter  is  only 
another  form  of  the  selling  appeal  which  has  grown 
up  under  conditions  similar  to  those  related  to  the 
advertising.  Unfortunately,  or  perhaps  fortunately, 
the  strongest  personalities  upset  ideal  methods  of 


DEPARTMENT  AND  SPECIALTY  STORES      289 

organization,  so  far  as  domination  of  the  establish- 
ment and  its  policies  is  concerned.  There  are  cases, 
for  instance,  in  very  successful  stores,  where  the  man 
having  the  title  of  advertising  manager  is  the  real 
merchandiser  and  the  man  having  the  title  of  mer- 
chandising manager  is  subordinated  to  the  former. 

10.  One-line  or  specialty  stores. — The  store  that 
carries  only  one  line  is  called  by  several  names — most 
commonly  the  specialty  shop,  but  sometimes  the  one- 
line  or  the  single-line  store.  It  is  a  store  that  special- 
izes in  a  single  line,  or  in  two  or  three  very  closely 
allied  lines,  such  as  shoes  and  rubbers,  hosiery  and 
gloves,  and  so  on.  One-line  stores  may  be  neighbor- 
hood or  community  stores,  such  as  a  village  jeweliy 
store  or  a  small  retail  jew^elry  store  in  a  residential 
section  of  a  city.  They  cater  to  the  needs  of  the  aver- 
age resident  in  the  district  in  which  they  are  located. 
Sometimes  they  cater  to  passers-by,  as  for  instance, 
the  haberdashery  in  the  Grand  Central  Station  in  New 
York  City  or  the  one  on  Wall  Street  in  the  same  city. 
Or  these  stores  may  cater  to  a  select  group  within  a 
city,  as  an  exclusive  millinery  store  on  Fifth  Avenue 
in  New  York  City  or  on  Michigan  Avenue  in  Chicago. 
But  there  is  little  difference  between  these  types ;  eacli 
is  a  single-line  store  catering  to  only  one  group  or 
class  of  people.  AVe  may  therefore  safely  consider 
them  as  comprising  a  single  group. 

11.  Analysis  of  territory  and  competition. — It  is 
even  more  necessary  to  analyze  the  territory  than  in 
the  case  of  a  general  or  (lej)artment  store,  because  the 


290  RETAIL  MERCHANDISING 

appeal  is  to  one  class  of  trade  only  and  the  risk  of  fail- 
ure is  greater.  In  a  village  store  the  proprietor  can 
do  this  without  much  effort  because  the  radius  of  op- 
eration is  small  and  a  large  percentage  of  the  people 
are  already  known  to  him.  The  method  described  in 
a  previous  chapter  is  readily  adaptable  to  the  purpose ; 
and  the  same  is  true  of  his  study  of  the  competition. 

In  the  city  store,  the  problem  is  a  bigger  one,  as 
is  evidenced  by  the  fact  that  so  many  specialty  shops 
fail.  Persons  guess  there  is,  for  example,  enough 
trade  to  warrant  a  high-class  millinery  shop,  only  to 
find  when  the  business  fails  there  is  not.  Gener- 
ally such  stores  are  organized  by  former  employes  of 
other  specialty  shops  who  are  able  to  take  part  of 
their  trade  with  them  to  the  new  store.  Failures  re- 
sult from  an  overestimate  of  the  amount  of  trade 
they  can  take  from  their  old  connection  or  of  the  addi- 
tional new  business  which  they  can  secure.  With 
failure  impending  it  is  necessary  to  make  the  analysis. 
The  total  trading  population  within  the  price  ranges 
decided  upon  should  be  tabulated,  and  the  competi- 
tion taken  into  consideration  in  order  to  show  the  pos- 
sible business  the  new  store  can  depend  upon. 

One  of  the  most  serious  problems  of  the  specialty 
shop  is  that  of  location.  It  has  been  frequently 
proven  that  one  side  of  Broadway  or  of  Fifth  Ave- 
nue in  New  York  is  very  much  better  than  the  other. 
This  is  the  result  of  several  factors.  In  the  case  of 
Broadway,  when  walking  either  north  or  south,  there 
are  fewer  obstructions  to  continuous  travel  on  the 


DEPARTMENT  AND  SPECIALTY  STORES      291 

west  side  below  Fortieth  Street,  tho  the  Times  Build- 
ing obstructs  continuous  travel  north  of  Forty-second 
Street  on  this  side.  Crossing  the  street  is  difficult  at 
the  busy  Forty-second  Street  corner  and  as  a  result 
many  people  walking  north,-  naturally  cross  over 
around  Fortieth  or  Forty-first  Street,  to  the  east  side 
of  the  street,  and  continue  up  on  that  side.  For  this 
reason  the  most  interesting  shops  are  on  the  west 
side  below  Fortieth  Street  and  on  the  east  side  above 
that.  They  tend  to  perpetuate  the  difference  in  re- 
tail location  values.  On  the  prosperous  side  of  the 
street  the  buildings  are  better  than  on  the  other,  tho 
this  is  an  effect  rather  than  a  cause.  At  present  it  is 
helping  to  perpetuate  the  differences. 

One  of  the  first  policies  to  be  settled  concerns  the 
class  of  trade  that  a  firm  shall  cultivate.  A  certain 
Detroit  clothier,  in  analyzing  his  territory,  figured 
that  the  best  men's-wear  trade  came  from  residents  of 
the  northern  part  of  the  city  in  the  section  along 
Woodward  Avenue.  He  decided,  therefore,  to  cater 
to  this  section.  He  analyzed  it  carefully  in  order  to 
ascertain  the  clothing  requirements  of  the  people. 
Then  he  studied  the  retail  section  and  decided  that 
the  west  side  of  Woodward  Avenue  about  a  block 
north  of  the  center  of  the  retail  section  would  be  the 
best  point  to  locate  his  store. 

12.  Marketing  policies. — The  specialty  store  suc- 
ceeds because  of  certain  well-defined  policies  more 
than  for  any  other  reason.  The  success  of  the  store 
service  is  based  on  convenience  of  location,  complete 


292  RETAIL  MERCHANDISING 

stocks,  personal  service,  frequent  turnovers  and  low 
expenses ;  while  the  method  of  operation  is  based  on  a 
limited  trade,  limited  advertising,  buying  in  small 
quantities  and  frequently,  on  exclusiveness  or  the  abil- 
ity to  offer  novelties. 

13.  Organization  and  financing. — The  specialty 
store  is  usually  a  one-man  affair  and  consequently  is 
generally  organized  as  a  single  proprietorship.  It  has 
a  better  credit  standing  than  a  corporation,  and  if  to 
this  is  added  well-known  ability  on  the  part  of  the 
proprietor,  the  store  can  get  any  needed  credit  on  the 
basis  of  a  small  capitalization.  Almost  any  jobber 
will  back  an  honest  young  store  clerk  in  the  financing 
of  a  specialty  store  if  he  believes  the  location  and  gen- 
eral conditions  are  satisfactory  and  the  young  man 
capable  of  running  the  store. 

14.  Buying  for  a  specialty  store. — It  is  assumed 
that  in  organizing  the  store  a  merchandise  plan  or 
operating  budget  has  been  developed  after  the  fashion 
previously  described.  Specialty  shops  offer  a  wider 
variety,  especially  of  novelties,  in  the  line  carried,  than 
the  corresponding  general  or  department  store.  For 
this  reason  the  main  problem  in  buying  is  to  maintain 
such  a  standard.  The  specialty  shop  proprietor  must 
spend  proportionately  more  of  his  time  in  buying  be- 
cause of  this,  and  likewise  because  of  the  fewer  offer- 
ings that  come  to  him  because  of  his  limited  buying 
capacity.  Buying  is  undoubtedly  the  biggest  prob- 
lem in  the  specialty  shop. 

15.  Stockkeeping. — As  a  rule  no  reserve  stocks  are 


DEPARTMENT  AND  SPECIALTY  STORES      i293 

carried.  Because  of  the  difficulty  of  his  buying  prob- 
lem the  proprietor  spends  all  his  time  except  during 
the  very  busy  hours,  from  eleven  to  one  and  from  two 
to  four  or  five  o'clock,  working  over  his  stock  and 
hunting  up  new  lines.  Everyone  employed  in  the 
store  knows  every  bit  of  stock  in  the  place.  Per- 
petual inventories  are  nearly  always  kept  in  the  man- 
ner described  in  the  preceding  chapter,  and  usually 
complete  records  are  kept  of  each  customer's  pur- 
chases in  order  to  get  an  idea  of  what  they  really 
desire. 

16.  Accounting. — There  are  more  sources  of  help 
in  accounting  for  single-line  stores  than  for  any  other 
type.  One  of  the  most  notable  contributors  is  the 
Harvard  System  of  Accounts  for  Shoe  Retailers.  In 
attempting  to  gather  data  on  the  retail  shoe  industry 
it  was  found  necessary  to  get  retailers  to  adopt  a  uni- 
form system  of  accounts  because  the  data  collected 
from  different  stores  did  not  represent  the  same  thing. 
There  was  no  uniform  classification  of  the  elements  of 
expense.  It  was  finally  decided  that  this  work  should 
be  done  by  a  joint  committee  composed  of  accountants 
of  national  reputation  and  a  few  of  the  most  prom- 
inent merchants  in  Boston  and  vicinity.  The  result, 
in  the  form  of  a  booklet  containing  the  necessary  ruled 
forms,  was  made  available  for  retailers  early  in  the 
year  of  1912.  Similar  systems  have  been  worked  out 
by  them  for  other  lines  and  may  be  obtained  at  a 
nominal  price  by  addressing  Harvard  University, 
Cambridge,  Mass. 


294  RETAIL  MERCHANDISING 

A  number  of  well-known  manufacturers  have  is- 
sued much  valuable  literature  on  the  subject  of  retail 
accounting.  The  National  Cash  Register  Company 
of  Dayton,  Ohio,  has  worked  out  systems  based  on 
the  use  of  their  machines,  for  practically  every  kind 
of  retail  store.  This  information  is  freely  given  to 
anyone  interested,  and  a  number  of  successful  ac- 
counting systems  have  been  based  upon  it.  The  firm 
of  Robert  H.  Ingersoll  and  Brother  of  New  York 
City  has  given  to  the  trade  a  "System  of  Retail  Ac- 
counting for  Jewelers,"  which  has  also  been  put  to 
good  use.  Hart,  Schaffner  and  Marx  of  Chicago 
also  have  an  excellent  system  for  the  retail  clothier. 

17.  Store  service. — The  keynote  of  the  specialty 
store  is  personal  service.  As  a  rule,  the  clerks  know 
all  their  regular  customers,  their  likes  and  dislikes,  as 
well  as  their  buying  ability.  Clerks  know  at  once 
what  to  show  each  customer  and  frequently  they  make 
it  a  practice  to  notify  them  when  new  goods  come  in. 
Clerks  have  authority  to  deliver  goods  to  charge  cus- 
tomers without  the  authorization  of  the  proprietor  or 
credit  man.  Inspectors  and  wrapping  clerks  are  dis- 
pensed with  and  the  clerk  does  not  leave  the  customer 
until  the  last  detail  of  the  purchase  is  finished  and  the 
customer  is  bowed  out  of  the  store.  In  every  way  the 
attempt  is  made  to  please  the  customer  thru  prompt, 
painstaking  and  personal  service. 

18.  Sales  force. — These  stores  call  for  a  higher 
grade  of  salesperson  than  do  the  department  stores. 
The  clerk  is  a  real  salesperson,  while  in  the  depart- 


DEPARTMENT  AND  SPECIALTY  STORES      295 

ment  store,  the  sale  is  generally  influenced  more  by 
the  advertising  and  display  of  the  goods  before  the 
customer  comes  in.  In  the  highest  class  of  specialty 
store,  conmiission  systems  of  payment  are  customary. 
In  village  stores,  even  in  good  ones,  it  must  be  ac- 
knowledged that  salaries  are  miserably  low.  The  pro- 
prietor takes  advantage  of  the  few  opportunities  which 
young  girls  in  villages  have  to  get  employment  by 
giving  as  low  a  salary  as  the  slight  competition  with 
other  stores  may  make  necessary.  Training  is  given, 
if  at  all,  by  the  proprietor  or  by  older  clerks,  and  a 
selling  ability  is  more  likely  to  be  inherent  than  the 
result  of  training. 

19.  Store  building  and  fixtures. — The  modern  spe- 
cialty shop,  whether,  for  example,  it  caters  to  the  shoe 
trade  of  a  small  city  or  that  on  Tremont  Street  in 
Boston,  is  a  model  of  its  kind.  Department  stores 
realize  this  asset  on  the  part  of  specialty  shops  and 
frequently  build  little  shops  within  their  stores,  such 
as  the  Burlington  Arcade  or  London  Shop  in  Wana- 
maker's  New  York  store.  There  can  be  no  doubt 
that  such  surroundings,  provided  they  are  appropriate 
to  the  class  of  trade  and  the  community,  aid  in  mak- 
ing sales. 

20.  Marh-up,  turnover  and  prices. — INIost  specialty 
shops  must  meet  a  certain  competition  from  depart- 
ment and  chain  stores.  The  corner  grocery  is  a  spe- 
cialty shop,  and  must  compete  in  price,  quality  or  serv- 
ice with  the  cut-rate  chain  store  across  the  street. 
Owing  to  the  wide  variety  of  conditions  under  which 


296  RETAIL  MERCHANDISING 

specialty  stores  operate,  from  the  corner  grocery  in 
the  tenement  district  to  the  exclusive  gown  shop  on 
Fifth  Avenue  in  New  York  City,  no  special  applica- 
tions of  the  principles  of  pricing,  already  discussed, 
can  be  given.  The  more  important  point  is  the  turn- 
over. Yet  again  that  is  relative.  The  corner  drug- 
store must  take  care  of  the  needs  in  its  district.  If  a 
customer  asks  for  Kolynos  Tooth  Paste  and  it  proves 
to  be  out  of  stock  at  the  moment,  the  customer  will  go 
to  the  next  nearest  drug  store  for  it.  After  a  few 
such  experiences,  the  customer  will  conclude  that  the 
store  is  poorly  managed  and  transfer  his  trade  to  an- 
other store.  The  principles  underlying  a  determina- 
tion of  turnover  apply  as  well  to  the  specialty  shop 
as  to  any  other  type  of  retail  store. 

21.  Advertising. — The  buying  public  to  w^hich  the 
store  caters  determines  the  advertising  mediums.  In 
the  case  of  a  village  clothier  the  medium  is  naturally 
the  village  weekly.  In  the  case  of  the  neighborhood 
haberdashery  in  a  large  city,  unless  there  is  a  distinctly 
local  newspaper,  the  publicity  is  limited  to  handbills, 
signs  and  other  forms  of  direct-by-mail  advertising. 
The  exclusive  shop  in  the  shopping  center  can  well  use 
the  exclusive  magazines  of  more  or  less  national  cir- 
culation, together  with  occasional  space  in  the  news- 
papers, which  go  to  the  homes  in  which  the  store  ap- 
peals for  trade.  The  greater  part  of  the  publicity  of 
the  exclusive  specialty  shop  must  be  thru  special  an- 
nouncements, displays,  special  booklets.  Sometimes 
personal  solicitation  is  used,  especially  by  neighbor- 


DEPARTMENT  AND  SPECIALTY  STORES      297 

hood  shops.  The  inability  to  use  the  usual  means  of 
advertising  saves  a  considerable  outlay.  Department 
stores  frequently  spend  from  two  per  cent  to  five  per 
cent  for  advertising  while  specialty  shops  frequently 
succeed  without  spending  a  penny.  Generally,  how- 
ever, this  saving  is  compensated  for  in  other  ways,  so 
that  the  net  result  is  neither  an  advantage  nor  a  dis- 
advantage. 

REVIEW 

Why  must  the  preliminary  analysis  of  the  territory  and  the 
competition  be  more  detailed  for  a  one-line  store  than  for  a  gen.- 
eral  store? 

What  are  the  permanent  characteristics  of  the  marketing,  buy- 
ing, stockkeeping  service  and  advertising  policies  of  the  one-line 
store  ? 

Describe  the  growth  of  the  department  store.  What  are  the 
difficulties   of  financing,  operation,  deliveries    and  adjustments? 

How  are  mail  orders  handled? 

What  is  the  work  of  the  merchandise  manager  in  a  depart- 
ment store,  and  how  is  it  related  to  that  of  the  advertising  man- 
ager ? 


XIX— idl 


CHAPTER  X 

THE  CHAIN  STORE 

1.  Analysis  of  the  selling  field. — The  thoroness 
with  which  the  United  Cigar  Stores  Company  and 
similar  chain  organizations  make  their  analysis  of  the 
selling  field  and  the  competition  has  been  quoted  in 
business  literature  and  is  often  held  up  as  a  model,  as 
it  really  is.  They  follow  all  the  methods  described  in 
the  chapter  on  Analysis  of  the  Selling  Field  and 
then  add  special  methods  of  many  kinds  of  which  only 
a  few  can  be  noted  in  the  limited  space  of  this  chapter. 
For  example,  when  a  store  in  the  Great  Atlantic  and 
Pacific  Tea  Company  system  gets  to  the  point  of  do- 
ing a  business  of  $600  a  week  the  traveling  superin- 
tendent is  expected  to  find  a  suitable  location  in  the 
vicinity  for  another  store.  In  another  grocery  chain 
system,  possible  locations  are  discovered  thru  a  check 
on  deliveries.  When  the  amount  in  some  section  a 
few  blocks  away  from  a  store,  reaches  a  hundred  dol- 
lars a  week,  the  section  is  looked  upon  as  a  likely 
one  for  another  store.  It  is  analyzed  and,  if  it  ap- 
pears to  have  possibilities  of  a  business  of  $200 
weekly  within  three  months  of  its  opening,  a  new  store 
is  opened,  provided  other  conditions  are  favorable. 
If  it  does  not  reach  the  quota  set  in  three  months  it 
is  closed  and  the  stock  and  fixtures  are  transferred  to 

298 


THE  CHAIN  STORE 

some  other  new  store  which  is  to  be  tried  out  in  the 
same  way. 

The  kind  of  trade  which  the  new  store  may  find 
available  is  quite  as  important  as  the  volume.  In  the 
location  of  their  shoe  stores,  the  traveling  supervisors 
of  the  Hanan  Shoe  Company  keep  in  mind  that  their 
stores  must  cater  to  people  who  ^y'\\\  pay  from  $7.00 
to  $10.00  a  pair  for  shoes.  Therefore  in  checking  up 
the  passers-by  they  count  only  those  who  seem  to  be 
probable  purchasers  of  their  quality  of  shoes.  Simi- 
larly, grocery  chains  check  nationalities  because  of  the 
effect  of  national  traits  on  food  purchases.  The 
United  Cigar  Stores  began  with  fundamental  statis- 
tics. The  average  annual  per  capita  consumption  of 
cigars  in  San  Francisco  was  estimated  at  $4.06,  while 
in  ^lilwaukee  it  is  only  $.22.  It  is  obvious  in  which 
of  these  two  cities  they  would  first  locate  stores.  The 
modern  chain  store  analyzes  the  territory  of  each  store 
in  every  other  possible  way.  As  it  grows  it  acquires 
experience  and  establishes  standard  practice.  It  re- 
duces the  whole  analysis  to  a  regular  system  and  is 
able  to  select  cities,  neighborhood  and  corners  with 
speed  and  precision. 

2.  Merchandising  policies. — One  of  the  directors  of 
the  United  Cigar  Stores  Company  recently  attributed 
the  phenomenal  growth  of  their  chain  to  their  success 
in  building  up  the  service  end  of  their  business.  Cour- 
teous, well-trained  clerks,  who  thank  each  customer — 
no  matter  how  small  the  purchase — are  fflr  more  ef- 
fective in  building  up  a  chain  than  differences  in  price. 


300  RETAIL  MERCHANDISING 

In  building  a  chain-store  organization  the  pohcy  on 
service  is  one  of  the  first  to  settle  definitely.  And 
once  it  is  decided  upon,  it  should  be  stated  so  explic- 
itly that  no  employe  can  have  an  excuse  for  forgetting 
it.  The  United  Cigar  Stores  Company  and  similar 
organizations  prepare  booklets  which  explain  the 
store's  policies  on  service  and  other  topics,  describe  the 
store  system  and  state  the  store  rules.  The  following 
are  some  of  the  topics  included  in  a  store  manual  is- 
sued for  use  in  the  Liggett-Riker-Hegeman  Drug 
Stores :  Rules  in  regard  to  promotion ;  the  handling 
of  complaints;  the  importance  of  personal  neatness 
and  cleanliness ;  telephone  service ;  how  to  care  for  the 
stock;  how  to  get  up  window  displays;  the  value  of 
courtesy;  the  necessity  for  prompt  service;  no  trans- 
action is  complete  until  the  customer  is  satisfied;  the 
future  prospects  of  the  employe. 

The  management  of  the  chain-store  organization 
must  decide  each  question  of  policy  in  its  relation  to 
others.  Recently  a  number  of  grocery  chains  have 
discontinued  delivery  service,  believing  that  their  par- 
ticular trade  would  prefer  to  buy  their  groceries  a 
bit  lower  in  price  and  carry  them  home.  In  another 
chain  in  a  different  line  similar  cuts  in  service  policies 
were  made  in  order  to  reduce  the  overhead  expense 
and  make  it  possible  to  reduce  prices.  This  chain 
claims  to  have  cut  two  per  cent  from  the  expense  of 
doing  business  and  to  have  reduced  prices  accord- 
ingly. Whether  such  a  policy  will  prove  a  wise  one 
in  the  lono^  run  is  doubtful. 


THE  CHAIN  STORE  301 

3.  Partnership  type  of  organization. — The  great 
problem  in  chain-store  organization  is  to  get  the  same 
intelHgent  effort  from  store  managers  and  clerks  that 
can  be  obtained  in  an  independent  store  of  the  same 
type  which  caters  to  the  same  trade.  Mr.  J.  C. 
Penney,  who  organized  the  Penney  Department 
Stores  thruout  the  ^Middle  West,  decided  that  the 
way  to  accomplish  this  was  thru  a  form  of  partner- 
ship between  the  individual  store  manager  and  the 
central  organization. 

The  plan  is  an  ingenious  combination  of  the  part- 
nership and  the  corporation.  The  parent  company 
issues  both  common  and  preferred  stock.  The  com- 
mon stock,  of  which  there  is  an  issue  of  $1,000,000,  is 
owned  entirely  by  ^Ir.  Penney  and  no  dividends  are 
paid  on  it.  The  preferred  stock,  of  which  $15,000,000 
is  authorized,  is  divided  up  into  series.  Each  series  is 
authorized  to  the  extent  of  $15,000,  and  represents  the 
total  authorized  capitalization  on  any  one  store. 
Every  series  is  handled  independently  so  that  the 
profits  of  each  store  may  be  kept  separate  from  every 
other  store,  and  the  dividends  on  the  stock  represent- 
ing each  store  may  be  exactly  the  net  earnings.  Thus 
one  store  may  earn  and  pay  in  dividends  twice  as  much 
as  a  neighboring  store. 

4.  Getting  the  partners. — The  plan  works  simply. 
Whenever  in  any  store  a  bright  young  clerk  has  saved 
up  a  few  hundred  dollars  and  gives  promise  of  success 
as  a  store  manager,  the  manager  of  the  store  and  the 
clerk  agree  on  the  location  for  a  new  store  and  re- 


RETAIL  MERCHANDISING 

fer  the  matter  to  the  central  organization  in  New 
York.  If  conditions  seem  to  promise  success,  the 
new  store  is  opened.  Mr.  Penney  invests  one-third 
of  the  amount  necessary,  the  local  manager  and  the 
new  man  who  joined  in  the  recommendation  each 
one-third.  In  case  the  local  manager  or  the  new  man 
cannot  raise  their  full  quota  Mr.  Penney  loans  it  to 
them  and  takes  their  note.  A  new  series  of  preferred 
stock  is  then  started  by  investing  the  amount  decided 
upon  as  necessary  for  financing  the  store  in  the  pre- 
ferred stock  of  the  parent  or  central  organization. 
The  latter  does  all  the  financing  of  the  new  store  from 
the  fund  received  from  the  sale  of  the  preferred  stock 
sold  and  issued  to  the  new  store. 

5.  Organization  and  operation. — The  organization 
is  simple.  Each  store  manager  has  full  authority  to 
run  his  own  store.  He  writes  his  own  advertising  and 
hires  and  trains  his  own  clerks.  The  central  organ- 
ization does  the  buying,  and  supplies  the  store  man- 
ager with  lists  of  merchandise  available  and  from 
which  he  can  choose  as  he  pleases.  All  purchases  are 
made  of  the  central  organization  which  has  its  head- 
quarters in  New  York.  Shipments  are  made  direct  to 
the  individual  stores  from  manufacturers.  No  sal- 
aries are  paid  to  the  half  dozen  or  so  buyers  at  the 
central  office  because  they  get  their  income  from  part 
ownership  in  stores.  Store  managers  receive  small 
salaries,  never  over  $100  a  month,  but  thru  ownership 
in  their  own  and  other  stores,  some  of  them  make  as 
high  as  $20,000  a  year. 


THE  CHAIN  STORE  303 

There  are  many  interesting  points  in  connection 
with  the  organization.  Every  employe  must  be  a 
clean-cut,  earnest  young  chap  who  has  the  makings 
of  a  store  manager  and  who  has  the  ambition  and  the 
willingness  to  work.  Each  one  must  have  served  sev- 
eral years  of  apprenticeship  and  must  have  saved  up 
several  hundred  dollars  before  he  is  allowed  to  open  a 
store. 

6.  Advantages  of  the  type. — Under  the  plan  there 
is  an  enormous  saving  in  central-organization  over- 
head as  compared  with  the  usual  chain-store  system. 
The  buying  expense  is  almost  nil  and  the  supervision 
is  so  limited  that  a  great  saving  results  there  also.  In 
chain  stores  generally  the  central-office  overhead  runs 
from  four  per  cent  to  eight  per  cent  whereas  under 
this  plan  it  is  said  to  be  less  than  one  per  cent.  The 
saving  in  buying  expense  is,  however,  largely  a  book- 
keeping saving  for  the  buyers  are  paid  from  individ- 
ual store  profits  rather  than  in  salaries  from  the  cen- 
tral organization  which,  in  turn,  would  come  from 
charges  against  the  stores.  The  saving  in  supervi- 
sion expense  is  more  real,  for  the  stores  can  be  run 
successfully  without  district  supervisors  and  traveling 
auditors.  Mr.  Penney  is  said  to  have  had  only  one 
case  of  inefficiency  and  no  cases  of  dishonesty  among 
his  store  managers  during  the  fourteen  years  in  which 
he  has  been  in  business.  Of  course,  if  he  found  it 
necessary  to  sell  stock  to  the  public  or  to  use  banking 
credit  to  any  great  extent,  it  would  be  necessary  to 
have  more  centralized  supervision  of  both  operation 


304  RETAIL  MERCHANDISING 

and  finances,  but  as  he  has  always  found  it  possible 
to  finance  each  new  store  himself  out  of  profits  of 
stores  ah-eady  running,  that  contingency  has  not  ar- 
rived. 

The  power  of  the  partnership  idea  is  the  real  force 
back  of  the  organization  and,  as  a  result,  INIr.  Penney 
has  been  able  to  secure  the  right  kind  of  material  for 
store  managers,  to  train  the  men  and  to  give  them 
such  profits  that  they  become  the  most  enthusiastic 
cooperators,  while  at  the  same  time  each  man  runs 
his  own  store.  Thus,  he  has  been  able  to  combine  all 
the  advantages  of  individual  store  ownership  and 
operation  with  a  considerable  number  of  the  advan- 
tages of  the  chain-store  system. 

7.  Corporation  type  of  chain  store. — In  the  more 
common  type  of  chain  store  the  initiative  comes  from 
the  central  organization.  This  is  the  true  chain, 
whereas  the  Penney  type  is  in  reality  a  form  of  co- 
operative buying  and  financing  plan. 

The  success  of  central  organization  is  largely  due 
to  the  fact  that  at  headquarters  experts  able  to  work 
out  the  most  efficient  method  are  engaged,  and  little 
is  left  to  the  initiative  of  the  individual  store  manager 
and  still  less  to  the  store  employes.  Buying,  adver- 
tising, training  the  sales  force  and  the  like  are  done 
at  headquarters.  The  systems  are  devised  there  and 
accounts  are  kept  there.  Managers  and  employes  at 
the  stores  devote  their  efforts  to  following  the  rules 
laid  down  in  regard  to  stockkeeping  and  selling. 
High-salaried  men  at  headquarters  do  the  construe- 


THE  CHAIN   STORE  305 

with  a 
er  ex- 
be  the 
tn  and 

I  func- 
ng  ap- 
f  busi- 
ng the 
rlance. 
Drug 
charts 
ut  the 

'  in  the 
I'S  pri- 
tment, 
•rofes- 
isiness 
IS  and 


chain- 
)tains, 
build- 
irove- 
Jnited 
ipany 
n-se  is 
1  then 
rents  to  the  cigar  store  company  any  section  it  desires 


ORGANIZATION  CHART  OF  THE    LIGGETT-RIKER-HEGEMAN    DRUGSTORES 


OFFICE   ORGANIZ 


,.Lo,S..      .„v„U 


ELD        ORGANIZATION 


THE  CHAIN  STORE  305 

tive  thinking.  It  is  thus  possible  to  operate  with  a 
lower  grade  of  store  employes  and  at  a  lower  ex- 
pense for  salaries  in  each  store  than  would  be  the 
case  otherwise.  Policies  can  be  more  uniform  and 
control  more  certain  in  the  corporation  type. 

8.  General  jjlan  of  organization. — The  usual  func- 
tions of  buying,  selling,  accounting  and  financing  ap- 
pear in  the  chain  store  as  in  every  other  type  of  busi- 
ness. The  distribution  of  these  functions  amoner  the 
various  executive  officers  may  be  obtained,  at  a  glance, 
from  the  chart  of  the  Liggett-Riker-Hegeman  Drug 
Stores.  While  no  two  chain-store  organization  charts 
are  identical,  the  general  plan  is  always  about  the 
same. 

The  only  peculiarity  in  this  chart  is  found  in  the 
work  called  "Ethical  Supervision."  This  refers  pri- 
marily to  the  prescription-compounding  department, 
but  includes  anything  relating  to  the  medical  profes- 
sion. One  of  its  purposes  is  to  build  up  the  business 
thru  the  cultivation  of  the  good-will  of  physicians  and 
dentists. 

9.  Real  estate  department. — In  a  number  of  chain- 
store  organizations  a  subsidiary  company  obtains, 
owns  or  rents  and  cares  for  the  store  sites  and  build- 
ings. The  United  ^Merchants'  Realty  and  Improve- 
ment Company  is  such  a  subsidiary  of  the  United 
Cigar  Stores  Company.  The  real  estate  company 
buys  or  rents  entire  buildings  when  such  a  course  is 
necessary  in  order  to  get  a  desired  location,  and  then 
rents  to  the  cigar  store  company  any  section  it  desires 


306  RETAIL  MERCHANDISING 

and  to  other  tenants  whatever  remains.  Theoret- 
ically, the  work  can  be  done  as  well  by  a  depart- 
ment of  the  chain-store  organization  as  by  a  subsid- 
iary corporation;  and  some  drug  and  grocery  chains 
are  making  as  good  profits  from  their  realty  opera- 
tions as  are  the  cigar  stores.  The  problem  is  a  little 
more  difficult  in  the  latter  case,  because  the  cigar 
stores  want  only  a  "hole-in-the-wall,"  as  someone  has 
called  it,  out  of  each  corner  store.  Yet  it  is  the  corner 
which  is  taken,  the  very  heart  of  the  building.  It  is, 
therefore,  more  difficult  to  arrange  leases  so  as  to  sub- 
let any  remaining  part  at  a  profit,  than  in  the  case  of 
a  drug  store  which  will  use  all  the  ground  floor  and 
basement  of  a  corner  store  and  perhaps  one  of  the 
upper  floors.  The  real  estate  work,  whether  done  by 
a  subsidiary  corporation  at  a  profit  of  three-quarters 
of  a  million  a  year,  as  in  the  case  of  the  cigar  stores,  or 
by  a  department  of  the  central  organization  so  as  to 
show  a  corresponding  profit  above  a  fair  rental,  as  in 
the  case  of  the  Childs'  restaurants,  is  one  of  the  most 
important  parts  of  the  central  organization. 

10.  Merchandising. — The  organization  for  mer- 
chandising is  similar,  in  that  one  department  selects 
all  lines  to  be  carried  while  another  sees  to  the  actual 
buying.  This  practice  is  also  found  in  mail-order 
houses  and  has  some  advantages.  The  one  who  se- 
lects new  lines  is  relieved  of  the  actual  purchasing  and 
so  can  devote  his  time  to  the  planning  of  all  selling. 
He  decides  what  can  be  sold  to  advantage  and  then 
leaves  to  another  the  task  of  purchasing.     There  is  a 


THE  CHAIN  STORE  307 

tendency  to  take  longer  speculative  chances.  When 
the  buyer  in  a  chain  organization  finds  a  bargain, 
he  takes  it,  regardless  almost  of  the  quantity  and  then 
begins  to  hunt  an  outlet  for  any  surplus  beyond  his 
selling  possibilities. 

11.  Supply  department. — The  organization  for  the 
actual  buying,  or  purchasing  as  it  is  called,  is  under 
the  supervision  of  the  manager  of  the  supply  depart- 
ment. The  lines  having  been  chosen  for  him  by  the 
merchandising  department,  it  is  his  task  to  buy  them 
at  the  best  price.  He  scours  the  market  for  goods  of 
the  desired  quality  at  the  desired  prices.  One  buy- 
ing advantage  of  the  chain  store  is  in  the  form  of 
special  terms,  either  thru  extra  discounts  or  longer 
terms.  Chain  stores  frequently  control  factories  or 
own  their  own  manufacturing  plants.  Others  have 
their  own  jobbing  concerns,  or  get  inside  prices  direct 
from  jobbers  and  brokers.  The  buyer  of  one  chain 
carries  his  checkbook  with  him  all  the  time  and  is 
ready  to  pay  in  advance  when  it  will  mean  a  saving  in 
price.  The  manufacturer  with  good  merchandise  can 
always  get  cash  immediately  from  a  chain  organization 
if  he  will  make  the  price  attractive ;  and  many  a  manu- 
facturer has  been  helped  thru  a  tight  place  in  just  this 
way.  New  lines  are  often  introduced  thru  chain 
stores  which  it  would  be  difficult  to  market  otherwise 
without  a  heavy  expense  in  creating  a  demand  on  the 
part  of  the  public. 

12.  Central  warehouse. — Whether  a  chain  organ- 
ization should  maintain  larger  reserve  stocks  in  a  cen- 


308  RETAIL  MERCHANDISING 

tral  warehouse  or  whether  it  should  depend  on  drop 
shipments  direct  from  manufacturers  to  each  store,  is 
a  much  debated  question.  In  hues  such  as  five  and 
ten-cent  novelties,  being  out  of  stock  in  any  stock  is 
not  a  serious  problem,  for  something  similar  will  gen- 
erally satisfy  or  in  case  it  does  not,  the  customer  does 
not  take  offense.  Therefore,  the  F.  W.  Woolworth 
Company  maintain  only  a  small  warehouse,  tho  their 
total  business  in  1916  was  nearly  a  hundred  million 
dollars.  This  results  in  an  enormous  saving  both  in 
warehouse  and  reshipping  expense,  in  interest 
charges  and  depreciation  on  goods  in  the  warehouse 
and  in  transit  to  the  stores. 

But  when  service  and  the  loss  of  a  sale  is  a  more 
serious  factor  the  central  warehouse  is  more  neces- 
sary. Therefore,  drug  and  grocery  chains  generally 
maintain  full  stocks  in  a  central  warehouse.  One  of 
the  smaller  chains,  the  Childs'  Grocery  Company,  at 
Camden,  New  Jersey,  employs  over  one  hundred  per- 
sons in  its  warehouse. 

13.  Co7itrol  of  ivarehouses. — In  the  Liggett  organ- 
ization, the  central  warehouses,  from  which  the  stores 
thruout  the  organization  are  supplied  with  merchan- 
dise, are  managed  by  a  depot  manager  who  is  re- 
sponsible to  the  vice-president  treasurer.  The  rea- 
son for  this  connection  is,  first,  that  the  auditing 
system  adopted  by  the  company,  and  which  is  under 
the  control  of  the  treasurer,  shall  be  carried  out  in 
the  depots,  and,  secondly,  because  of  the  necessity  that 
the  treasurer  should  control  the  question  of  invest- 


THE  CHAIN  STORE  309 

ment.  It  will  be  seen  later  that  the  organization  de- 
pends largely  for  its  success  on  the  system  of  checks 
and  counter-checks  presented  by  the  apparent  inter- 
relation of  departments.  The  control  over  the  de- 
pots by  the  treasurer  acts  as  a  check  upon  any  tend- 
ency on  the  part  of  the  supply  department  to" 
overbuy. 

l-l.  Planning  special  sales. — The  manager  of  mer- 
chandising must  plan  the  selling  activities  of  the  chain, 
in  cooperation  with  the  organization.  Some  years  ago 
the  sales  manager  of  a  drug  chain  conceived  the  idea 
of  the  one-cent  sale  as  a  means  of  moving  an  over- 
supply  of  their  own  private  brand.  The  plan  was  to 
give  two  bottles  of  a  fifty-cent  toilet  water  for  the 
price  of  one  plus  one  cent,  or  a  total  of  fifty-one  cents. 
It  meant  a  reduction  from  fifty  cents  to  twenty-five 
and  a  half,  but  to  each  customer  was  sold  twice  the 
usual  quantity  in  a  single  sale.  Several  manufactur- 
ers concluded  this  would  be  a  good  way  to  advertise, 
charging  any  loss  to  publicity  as  a  sort  of  sampling  in 
which  the  customer  pays  at  least  the  prime  cost  of 
the  samples.  Several  manufacturers  asked  to  come 
in  on  the  sale  and  it  has  become  a  regular  feature 
with  many  chains  for  the  purpose  of  introducing  new 
lines  and  of  disposing  of  overstocks  of  goods.  The 
plan  is  at  once  to  the  advantage  of  manufacturer,  re- 
tailer and  consumer. 

15.  Employment  and  training. — INIost  of  the  big 
chains  maintain  a  large  employment  department  as 
a  part  of  the  sales-manager's  organization  at  head- 


310  RETAIL  MERCHANDISING 

quarters,  tho  in  the  chart  shown,  it  is  assigned  to  the 
financial  manager.  This  is  due  to  his  previous  expe- 
rience in  the  work  rather  than  to  inherent  functional- 
ization.  Here  all  salesmen  for  the  stores  are  selected. 
Mr.  Petermann  of  the  United  Cigar  Stores  interviews 
many  thousand  applicants  each  year  for  positions  as 
salesmen  in  the  United  Cigar  Stores.  Out  of  this 
number,  only  one  out  of  every  hundred  survives  the 
test  which  he  gives  them,  and  only  four-fifths  of  one 
per  cent  permanently  make  good. 

The  big  chains  usually  find  it  necessary  to  train 
all  new  salesmen  at  headquarters.  New  men  attend 
the  training  school  for  a  week  or  two,  and  then  are 
given  two  weeks'  experience  in  one  of  the  stores. 
Then  they  are  brought  back  to  the  training  school  for 
another  week  of  instruction,  in  order  to  round  out 
their  training  after  contact  with  a  store.  Such  train- 
ing schools  are  not  considered  as  necessary  in  grocery 
chains  which  do  business  largely  on  the  price  basis. 
However,  it  is  worthy  of  note  that  instances  have  oc- 
curred in  which  companies  have  closed  their  doors 
one  afternoon  a  week,  so  that  the  salesmen  might  take 
advantage  of  educational  classes.  Particular  atten- 
tion is  being  given  by  this  new  chain  to  training  neat 
and  courteous  salesmen  who  know  their  merchandise 
thoroly.  Some  chains  prefer  to  put  the  new  men  in 
the  store  at  once  and  let  the  store  managers  train 
them.  When  a  young  man  enters  the  Woolworth 
Company,  he  is  started  in  a  store  basement  where  he 


THE  CHAIN  STORE  311 

learns  all  about  the  merchandise.  It  takes  about  three 
years  to  train  a  manager,  and  during  that  time  the 
new  man  will  have  worked  in  each  different  depart- 
ment in  at  least  five  or  six  stores. 

16.  Keeping  in  touch  with  employes. — The  sales 
manager  must  keep  in  touch  with  his  men  thru  letters, 
bulletins  and  house  organs,  and  thru  the  personal 
visits  of  himself  or  the  district  manager.  Of  course, 
the  salesmen  are  encouraged  to  boost  their  sales  con- 
tinually thru  various  contests,  in  the  hope  of  increased 
salary,  and  the  desire  to  have  their  good  work  com- 
plimented in  the  house  organ.  jNIost  chain  stores  pay 
their  salesmen  on  a  salary  and  commission  basis  in 
order  to  stimulate  the  sales  as  much  as  possible.  The 
United  Cigar  Stores  pay  their  men  on  a  salary  basis 
and  then  divide  among  the  store  salesmen  and  the 
manager,  a  certain  percentage  of  the  increase  in  sales 
over  the  corresponding  month  of  the  year  before.  No 
commission  is  paid  to  the  men  if  there  is  any  shortage 
in  the  cash  or  discrepancy  in  the  accounting  records. 
Naturally,  this  binds  the  store  salesmen  together,  and 
makes  each  one  responsible  for  the  other's  mistakes. 

17.  District  manager. — In  a  large  chain  the  super- 
vision of  individual  stores  is  largely  in  the  hands  of 
the  district  or  territory  managers  who  have  charge  of 
all  stores  in  a  section.  In  the  case  of  districts  at  some 
distance  from  headquarters  the  district  managers  have 
considerable  discretionary  power.  They  countersign 
requisitions  for  goods,  and  in  fact  generally  do  the 
real  merchandising  of  each  store  under  their  supervi- 


312  RETAIL  MERCHANDISING 

sion.  They  investigate  all  complaints  and  even  take 
time  to  call  on  dissatisfied  customers.  On  each  trip 
to  each  store,  they  make  a  complete  analysis  from  the 
back  door  to  the  front  including  the  cellar.  In  the 
final  analysis  their  function  is  to  keep  up  the  volume 
of  business  and  the  quality  of  service.  Various  mod- 
ifications of  the  general  plan  of  supervision  are  found 
in  different  chains. 

18.  Department  managers. — In  the  Liggett-Riker- 
Hegeman  Drug  Stores  each  store  is  departmentized 
and  every  detail  of  each  department  is  followed  up 
thru  the  auditing  system  so  that  not  only  is  the  busi- 
ness of  each  store  known  in  detail,  but  the  executives 
are  able  to  tell  in  what  fines  each  store  is  gaining  or 
losing.  To  aid  in  maintaining  each  department  at  its 
highest  possible  standard,  specialists  have  been  ap- 
pointed for  the  various  departments.  For  instance, 
a  man  who  has  a  national  reputation  as  an  authority 
on  toilet  goods  specializes  in  that  department.  An- 
other man  who  is  not  only  a  very  able  merchant,  but 
also  has  practical  knowledge  and  experience  in 
the  soda  and  candy  business,  specializes  in  these  de- 
partments. It  is  the  duty  of  each  of  these  depart- 
ment heads  to  visit  the  stores  thruout  the  chain  with  a 
view  to  working  up  his  department.  These  depart- 
ment managers,  like  the  territorial  managers,  are  re- 
sponsible to  the  president. 

19.  Advertising  and  displays. — The  advertising 
manager  is  usually,  directly  under  the  sales  manager, 
and  has  charge  of  all  advertising,  both  for  the  private 


THE  CHAIN  STORE  313 

brands  of  the  chain,  and  for  each  store  in  the  chain. 
A  corps  of  men  at  headquarters  draw  up  all  new  plans 
and  write  copy,  circular  letters  and  the  like.  Some- 
times a  printing  and  art  department  is  included. 

All  window  displays  are  usually  planned  and  pre- 
pared at  the  home  office,  tho  in  a  few  cases  the 
work  is  done  by  a  subsidiary  corporation.  The  dis- 
play manager  has  charge  of  getting  up  all  new  ideas 
for  such  displays  under  the  direction  of  the  sales 
manager.  The  dimensions  of  the  windows  in  each 
store  are  on  file  at  the  home  office,  so  that  the  dis- 
play manager  can  prepare  the  display  in  all  its  de- 
tails and  simply  ship  it  to  the  store  with  instructions 
to  the  store  manager  how  to  set  it  up. 

20.  Mail-orders  and  local  agencies. — Some  of  the 
chain  stores  are  now  going  into  the  mail-order  busi- 
ness. The  Kresge  Company,  of  Detroit,  which  op- 
erates a  big  chain  of  five-and-ten-cent  stores,  is  now 
reaching  out  for  this  kind  of  trade.  The  local  stores 
in  the  J.  C.  Penney  chain  operate  a  mail-order  busi- 
ness, which  very  often  runs  up  as  high  as  a  thousand 
dollars  a  month.  They  feel  that  they  have  simply 
made  a  beginning  in  this  field. 

Closely  associated  with  this  is  the  exclusive  agency 
as  another  mean3  of  selling  business  in  communities 
too  small  to  support  a  local  store.  It  is  interesting 
to  note  that  many  of  the  chains  are  now  considering 
taking  up  national  advertising.  The  United  Cigar 
Stores  have  already  started  their  campaign,  and  plan 
to  spend  $250,000  during  the  first  year  for  an  adver- 

XIX— 22 


SU  RETAIL  MERCHANDISING 

tising  campaign  in  support  of  their  mail-order  and 
exclusive  agency  business.  Proprietors  of  drug  and 
other  stores  taking  on  one  of  their  agencies  are  able  to 
secure  the  benefit  of  all  the  United  Cigar  Stores' 
plans  and  methods,  even  the  assistance  of  the  real 
estate  department  in  picking  a  store  site,  and  the  dis- 
play manager's  ideas  in  regard  to  trimming  their  win- 
dows. Once  more  this  is  a  case  where  the  independent 
merchant  is  learning  from  the  much  hated  chain. 

21.  Store  manager. — In  almost  all  chain  organiza- 
tions, the  store  manager  spends  most  of  his  time  in 
actual  selling,  for  the  merchandising  is  done  for  him. 
In  a  grocery  chain,  the  store  force  frequently  consists 
of  a  store  manager  and  a  dehvery  boy.  The  travel- 
ing superintendent  gets  to  each  store  daily,  checks  up 
the  business  and  the  stock  and  puts  in  the  requisi- 
tions for  goods.  The  manager  deposits  all  cash  re- 
ceipts in  a  local  bank,  except  in  some  chains  in  which 
he  is  allowed  to  pay  directly  the  salaries  and  inci- 
dental expenses,  and  mails  the  deposit  shp  to  the 
treasurer  along  with  the  vouchers  for  any  money  paid 
out  and  a  daily  report  of  sales,  stock  on  hand  and 
expenses. 

22.  Stockkeeping  system. — Each  of  the  store  man- 
agers is  given  very  careful  instructions  as  to  the  neces- 
sity of  keeping  his  stock  in  good  order.  Inventories 
are  usually  taken  about  once  a  month  in  lines  like 
drugs  and  cigars.  When  new  stores  are  opened  up, 
or  in  stores  which  are  not  paying  as  well  as  they 
should,  inventories  are  taken  more  frequently.     Very 


THE  CHAIN  STORE  315 

often,  men  are  sent  out  from  headquarters  to  take  the 
inventory  of  the  stock  so  that  the  manager  of  the 
store  does  not  have  to  bother  with  this  at  all.  The 
manager  of  each  store  is,  of  course,  personally  respon- 
sible for  all  goods  from  the  time  he  signs  a  receipt  for 
them  until  they  are  sold. 

One  of  the  simplest  systems  is  found  in  a  chain  of 
meat  markets.  All  goods  are  charged  to  each  store 
at  cost  plus  an  overhead  to  cover  the  central  organiza- 
tion expense  and  the  prices  for  each  kind  of  meat 
and  each  cut  are  set  by  the  central  organization  from 
day  to  day.  On  Saturday  night  after  the  store  closes, 
a  complete  inventory  of  stock  on  hand  at  cost  is  made. 
Quarters  of  beef  partly  cut  are  estimated  pro  rata 
according  to  the  value  of  parts  remaining  in  propor- 
tion to  the  total  cost.  This  is  subtracted  from  the 
total  of  the  goods  on  hand  at  inventory  a  week  pre- 
vious plus  the  cost  of  the  goods  delivered  to  the  store 
during  the  week.  This  gives  the  cost  of  goods  sold 
during  the  week.  To  the  total  of  the  sales  is  added 
the  value  of  scraps  on  hand  and  from  this  is  deducted 
the  expenses  of  the  store  for  salaries,  rent,  advertis- 
ing, and  likewise  the  cost  of  goods  sold  as  previously 
figured.  The  balance  is  the  net  profit  of  the  store  for 
the  week.     The  following  is  an  illustration : 

Inventory  at  dose  of  bnsiness  on  Saturday  night,  November  4, 

1916",  at  cost   (including:  scrai)s) $    500.00 

^lercliandise  received  bv  store  during  week  of  Nov.  6-11,  1916, 

at  cost : 80Q-QQ 

Total   $1,300.00 

Inventory  at  close  of  business  on  Saturday  night,  November  11, 

1916,  at  cost  (including  scraps) '1-.50.00 

Cost  of  goods  sold  during  week  of  Nov.  6-11,  1916 $   850.00 


316  RETAIL  MERCHANDISING 

Receipts  from  retail  sales $    950.00 

Receipts  from  scraps  sales 25.00 

Total  receipts   $    975.00 

Expenses  for  salaries,  rents,  etc 100.00 

Net  receipts    $   875.00 

Subtracting  cost  of  goods  sold 850.00 

Net  profit  for  store  for  week $     25.00 

In  a  grocery  system  it  is  customary  to  charge  each 
item  to  the  store  at  the  retail  price  and  then  at  in- 
ventory on  Saturday  night  the  store  manager  must 
be  able  to  turn  over  an  account  for  each  item  received, 
by  producing  it  or  the  equivalent  in  cash  receipts. 
Such  a  system  is,  of  course,  more  exact  than  the  meat 
market  system  just  illustrated. 

23.  Control  of  stock  turnover. — To  each  store  a 
standard  stock,  based  on  its  volume  of  business,  is 
given  on  which  the  manager  is  required  to  do  business. 
It  is  part  of  the  vice-president's  duty  to  see  that  that 
standard  is  just  and  adequate,  and  is  maintained  in 
such  a  way  that  there  shall  be  no  loss  thru  unnecessary 
investment,  or  loss  of  business  thru  lack  of  merchan- 
dise. This  control  acts  as  a  check  against  rash  buy- 
ing on  the  part  of  the  store  managers  who  are  ex- 
pected to  merchandise  for  their  respective  stores. 

24.  Accounting  system  for  store. — Practically  all 
chain  stores  are  run  on  a  cash  basis,  and  all  the  gen- 
eral accounting  is  handled  at  headquarters.  So  the 
only  accounts  kept  by  the  store  manager  are  the  rec- 
ords on  carbon  copies  of  goods  obtained,  the  totals  of 
sales  from  the  cash  register  and  the  totals  of  expenses 
from  vouchers. 


THE  CHAIN  STORE  317 

The  following  are  the  records  made  up  by  each  store 
manager : 

( 1 )  Comparative  sales  record  by  stores,  and  by  depart- 
ments of  stores,  weekly  (7  day,  1-i  day,  21  day,  28  day)  and 
cumulative  for  month. 

(2)  Monthly  reports  of  stock — purchases  against  sales — 
and  stock  on  hand  at  end  of  month. 

(3)  Monthly  report  showing  standing  of  each  store  in 
detail — sales,  expense,  profits. 

(4)  Inventory  of  each  store  4-  or  5  times  a  year, 

25.  Accounting  system  for  central  organization. — 
An  elaborate  system  of  accounting  is  required  in  the 
central  organization.  In  one  chain  it  consists  of  the 
following  records  and  reports: 

(1)  Daily  receiving  sheets.  Showing,  by  departments, 
all  goods  received  from  all  sources  of  supply. 

(2)  Daily  sales  report.  Showing  receipts,  by  depart- 
ments. 

(3)  Contingent  fund  report.  Showing  payments  made, 
from  the  store's  contingent  fund,  of  various  expenses,  such 
as  postage,  car  fares,  etc. 

(4)  Weekly  pay  roll  report.  Showing  names  of  persons 
employed. 

No  matter  how  closely  each  store  may  be  super- 
vised by  traveling  superintendents  and  district  man- 
agers, the  chief  executives  need  to  have  at  all  times 
complete  data  on  each  store  and  on  the  whole  system. 
The  problem  of  running  a  group  of  stores  at  scat- 
tered points  is  a  serious  one  and  failure  is  sure  to  re- 
sult unless  the  executives  constantly  have  the  most  de- 
tailed data.     The  expense  of  gathering  these  data  is 


318  RETAIL  MERCHANDISING 

one  of  the  disadvantages  of  chain  store  organization. 
But  when  the  saving  in  expense-accounting  work  at 
each  store  is  figured,  the  cost  ceases  to  be  prohibitive, 
and  where  divided  among  several  hundred  stores  it 
becomes  relatively  small. 

REVIEW 

Describe  the  methods  used  by  chain  stores  in  their  analysis 
of  the   selling  field  and  in  their  merchandising  policies. 

What  is  the  usual  origin  of  chain  stores  ? 

Describe  the  organization  of  the  Penney  Department  Store. 
and  contrast  this  with  other  chain  stores. 

What  are  the  real  estate  problems  of  the  chain  store,  and  how 
are  they  managed? 

Explain  the  policy  of  chain  stores  with  respect  to  buying  and 
maintaining  a  central  warehouse. 

Describe  the  duties  of  the  sales  manager,  the  district  manager 
and  the  traveling  superintendent. 

What  are  prominent  characteristics  in  advertising  and  dis- 
plays ? 

How  are  mail-order  and  local  agencies  helping  to  develop  the 
chain  store? 

What  are  the  methods  of  stockkeeping  and  the  records  which 
they  entail  ?  What  are  the  accounting  methods  of  the  individual 
store  and  of  the  central  organization? 


CHAPTER  XI 

THE  MAIL-ORDER  HOUSE 

1.  Analysis  of  the  selling  field. — Each  of  the  large 
mail-order  houses  has  made  a  more  or  less  thoro  analy- 
sis of  the  territory  in  which  it  operates,  tho  in  most 
cases  this  was  done  after  the  house  was  well  started. 
A  beginning  was  generally  made  by  buying  maihng 
lists  for  various  sections.  Some  years  after  Sears, 
Roebuck  and  Company  was  founded,  the  company 
made  an  analysis  of  the  United  States.  It  was  de- 
cided neither  to  solicit  nor  to  encourage  business  orig- 
inating outside  of  the  United  States,  and  the  policy 
has  been  adhered  to  consistently. 

One  of  the  problems  in  any  business  is  to  discount 
any  local  conditions  that  are  detrimental  and  take 
advantage  of  any  that  are  good.  In  surveying  a  sec- 
tion it  is  necessary  to  observe  as  wide  a  variety  of  con- 
ditions as  possible.  The  mail-order  house  is  at  an 
advantage  because  its  appeal  is  general.  When  the 
cotton  crop  in  the  South  is  poor,  the  wheat  crop  in  the 
Northwest  may  be  good.  The  analysis  must  be  by 
sections  and  by  sources  of  income. 

There  must  be  constant  rennalysis  in  order  that  sell- 
ing plans  may  be  adjusted  to  changing  conditions. 
During  the  fall  of  1916,  a  mail-order  house  discovered 

319 


320  RETAIL  MERCHANDISING 

that  the  farmers  of  Maine  were  particularly  prosper- 
ous because  of  the  big  potato  crop  and  the  high  mar- 
ket prices.  Immediately  they  sent  out  to  the  Maine 
farmers  special  catalogs — "flyers,"  as  they  are  called 
in  mail-order  houses — listing  such  luxuries  as  pianos 
and  phonographs.  The  amount  of  business  they  ob- 
tained was  surprising. 

2.  Marketing  policies. — The  first  principle  of  mail- 
order work  is  that  the  exact  truth,  without  reserva- 
tion or  qualification,  must  be  told  at  all  times.  The 
catalog  descriptions  must  be  so  accurate  that  they 
cannot  be  misunderstood.  One  mail-order  man  says 
that  fully  fifty  per  cent  of  the  returns  are  caused  by 
the  customer's  failure  to  understand  the  description. 
This  can  be  largely  eliminated  by  a  persistent  attempt 
on  the  part  of  the  copy  writer  to  anticipate  any  possi- 
ble misinterpretations. 

It  is  ahnost  equally  fundamental  that  there  should 
be  promptness  in  handling  orders  and  correspondence. 
Mail-order  houses  are  as  a  rule  marvels  of  efficient 
operation.  Every  step  in  handling  an  order  is 
scheduled  and  a  record  of  the  actual  time  required  to 
handle  it  in  each  department  is  recorded  by  time 
clocks.  As  a  department  manager  in  one  house  re- 
marked, "Everything  here  is  done  by  schedule.  We 
work  by  schedule  and  play  by  schedule;  we  eat  by 
schedule  and  sleep  by  schedule;  we  dream  schedules." 

Various  points  in  connection  with  the  operating  of 
a  business  call  for  decisions  on  policy.  The  classes  of 
trade  for  which  the  house  is  to  cater  must  be  deter- 


MAIL-ORDER  HOUSE  321 

mined.  It  was  only  a  few  years  ago  that  nearly  all 
the  business  was  with  farmers.  In  fact,  most  houses 
refused  to  send  their  catalog  to  residents  of  large 
cities.  Recently  Sears,  Roebuck  &  Company  put  out 
a  special  edition  of  Encyclopedia  Britannica.  One 
indirect  result  was  the  influence  it  had  in  helping  them 
extend  their  trade  in  the  large  cities,  particularly 
among  the  educated  classes. 

The  whole  marketing  policy  is  summed  up  in  the 
word  "service."  All  retailers  must  serve  their  cus- 
tomers, but  the  mail-order  house  is  at  a  greater  dis- 
advantage because  of  the  loss  of  personal  contact 
between  themselves  and  the  customer.  At  the  slight- 
est discourtesy  in  correspondence,  carelessness  in  fill- 
ing his  orders  or  in  packing,  the  least  hesitancy  to  take 
the  customer's  word  for  shortcomings  or  damages,  the 
mail-order  house  is  put  on  the  customer's  black  list. 
Therefore  the  service  must  be  of  the  highest  character 
in  every  respect.  The  slogan  of  Charles  Williams 
Company  is  "Consider  the  Customer."  It  sums  up 
well  the  marketing  policy  of  the  house. 

3.  Location. — The  decision  on  the  city  in  which 
the  house  is  to  locate  is  another  result  of  the  analysis 
of  the  selling  field,  and  of  the  determination  of  mar- 
keting policies.  A  house  located  in  New  York  is 
seriously  handicapped  compared  with  one  in  Chi- 
cago in  the  cost  of  delivery  and  the  time  required  to 
reach  customers  in  most  parts  of  the  country.  On 
the  other  hand  in  women's  wear,  in  wliich  style  is  more 
important  than  the  extra  cost  of  delivery  or  time  re- 


322  RETAIL  MERCHANDISING 

quired,  it  is  frequently  considered  preferable  to  lo- 
cate in  New  York,  as  it  is  the  style  center.  For  that 
reason  Montgomery  Ward  &  Company  handle  all 
their  "fashion"  merchandise  from  a  special  branch  in 
New  York  City.  Altho  they  have  also  a  general  east- 
ern branch  in  Brooklyn,  orders  for  women's  wear, 
even  tho  coming  from  a  suburb  of  Chicago  where  the 
main  house  is  located,  are  shipped  from  the  New  York 
City  office. 

The  location  within  the  city  is  important  from  an- 
other basis.  The  prime  requisite  is  a  suitable  build- 
ing. The  machinery  for  handling  the  merchandise 
is  highly  specialized,  and  calls  for  such  things  as 
gravity  conveyers,  spiral  chutes,  belt  conveyers,  pneu- 
matic tubes  and  the  like.  Everything  must  be  han- 
dled and  routed  as  in  a  factory.  Shipping  facilities 
must  be  of  the  best.  The  eastern  branch  of  Mont- 
gomery Ward  and  Company  is  in  a  public  terminal 
building  on  the  Brooklyn  water  front,  while  the  Na- 
tional Cloak  and  Suit  Company  offices  are  situated 
in  a  newly  constructed  building  near  the  west-side 
docks  and  freight  terminals  in  New  York  City.  The 
mail-order  house  effects  a  great  saving  over  other  re- 
tail establishments  in  the  rental  expense  by  being  in 
cheaper  rental  sections.  Also  thru  the  fact  that  it 
needs  no  expensive  buildings  with  window  and  interior 
displays  and  various  service  features  such  as  rest 
rooms  for  customers. 

The  labor  problem  must  not  be  overlooked  in  se- 
lecting the  location.     JNIuch  of  the  work  in  a  mail- 


ORGANIZATION   CHtRT  OF  A  MAIL   ORD£R   HOUSE 


MAIL-ORDER  HOUSE  323 

order  house  is  in  a  sense  factory  work  or  at  least  must 
be  done  on  a  factory  basis.  As  a  result  the  turnover 
of  labor,  in  spite  of  high  wages,  educational  classes, 
excellent  working  conditions  and  various  types  of  wel- 
fare work,  is  higher  than  in  department  stores,  and 
is  consequently  a  heavy  drag  on  the  business.  Con- 
ditions in  the  labor  market  vary  with  different  cities 
and  in  different  sections  of  the  same  city,  so  that 
there  is  some  possibility  of  discounting  the  handicap. 
But  at  best  it  offers  a  serious  problem. 

4.  Organization. — In  general,  the  plan  for  internal 
organization  is  similar  to  that  of  any  retail  concern, 
for  there  are  the  same  functions  to  perform.  In  fact 
about  the  only  real  difference  between  the  operation 
of  a  mail-order  house  and  a  department  store  is  that 
in  the  former  a  written  order  instead  of  a  person 
travels  around  from  one  department  to  another.  The 
general  plan  of  functional  relationship  is  shown  by 
the  organization  chart  opposite. 

5.  Financing  a  mail-order  house. — In  the  past 
many  concerns  have  been  organized  "on  a  shoe 
string."  The  organizer  raised  enough  capital  to  ad- 
vertise either  in  magazines  or  by  circulars.  As  each 
order  was  secured,  he  obtained  the  goods  from  a 
manufacturer,  so  that  an  investment  in  stock  was  un- 
necessary. It  is  still  possible  to  follow  the  same 
method  in  certain  specialties,  but  in  the  case  of  staple 
merchandise,  it  would  be  impossible  to  get  the  goods 
in  single  lots  at  a  price  which  would  enable  the  mail- 
order   man    to    crjinpfic^   uitli    well-financed   houses. 


324  RETAIL  MERCHANDISING 

Moreover,  the  returns  are  likely  to  be  slow  in  any  new 
house.  Therefore  the  new  firm  must  be  strong 
enough  financially  to  buy  in  quantity  at  the  best 
quantity  price,  and  to  weather  a  long  period  in  which 
the  business  is  getting  on  a  paying  basis. 

Once  the  business  is  under  way,  it  is  run  by  financial 
budget  just  as  a  department  store. 

Mail-order  houses  are  generally  run  on  a  cash  basis, 
so  there  is  no  credit  collection  problem.  The  audit- 
ing is  a  simple  matter  as  all  sales  are  entered  in  the 
auditing  department  directly  after  the  order  is  re- 
ceived. 

6.  Merchandising  the  business. — The  merchandis- 
ing aspect  of  the  mail-order  house  is  parallel  to  that 
of  a  department  store.  A  plan  for  each  season  is 
made  out  by  the  merchandise  manager,  and  each 
buyer  is  expected  to  follow  the  plan.  Buyers,  how- 
ever, have  wide  latitude  in  large  concerns.  If  the 
buyer  does  not  earn  a  good  profit  during  the  season, 
he  is  summarily  dropped.  The  turnover  in  buyers  is 
almost  as  high  as  in  the  clerical  force. 

The  problem  of  buying  is  complicated  by  the  fact 
that  prices  must  be  maintained,  if  possible,  for  six 
months.  One  concern  in  the  case  of  cotton  goods, 
buys  a  six  months'  supply  "in  the  gray"  or  unbleached 
and  unprinted  state,  and  then  converts  the  goods  from 
time  to  time  according  to  the  demand  of  color,  style, 
design  and  the  like.  In  order  to  secure  a  supply 
at  the  best  prices,  buyers  go  to  any  length  necessary. 
If  they  can  get  better  terms  by  contracting  for  a 


MAIL-ORDER  HOUSE  325 

mill's  whole  output,  they  do  it.  Sometimes  they  can 
save  money  by  putting  up  factories  of  their  own. 
Again,  they  may  not  find  on  the  market  just  the  par- 
ticular article  or  quality  for  which  there  is  a  demand. 
But  in  general  it  is  doubted  if  any  retailer  saves 
money,  in  the  long  run,  thru  manufacturing  his  own 
goods. 

Various  minor  considerations  arise  in  buying  for  a 
mail-order  house.  One  is  the  possibility  of  offering 
a  much  wider  range  than  the  average  retailer,  and 
yet  to  make  a  profit  from  an  ordinary  mark-up  a 
retail  hardware  dealer  figures  that  he  must  make  an 
average  mark-up  of  25  per  cent  on  retail  prices,  and 
turn  his  stock  four  times  a  year,  to  make  ten  per 
cent  annually  on  his  capital  investment.  If  he  has 
some  lines  which  he  carries  to  accommodate  certain 
customers  and  in  which  a  stock  of  a  dozen  might  last 
two  or  three  years,  it  is  evident  he  should  get  a  higher 
mark-up — perhaps  50  per  cent,  than  on  the  average 
of  his  line.  Yet  the  mail-order  house,  selling  nation- 
ally, can  turn  the  same  stock  several  times  a  year  and 
so  can  sell  the  article  at  25  per  cent  mark-up  and  make 
its  average  profit. 

Another  such  consideration  is  in  connection  with 
articles  for  which  a  market  must  be  created.  The 
large  mail-order  house  has  so  much  selling  momentum 
that  it  can  create  a  demand  which  otherwise  would  not 
exist  in  appreciable  quantity.  For  instance,  the  cata- 
log of  Sears,  Roebuck  and  Company  for  the  fall  of 
1916   features  fixtures  for  water  supply  for  farm 


326  RETAIL  MERCHANDISING 

houses.  The  farmer's  wife,  on  reading  the  story  of 
the  advantages  of  running  water  for  the  kitchen,  to- 
gether with  the  plain  statement  of  the  small  expense 
involved,  and  the  ease  with  which  such  equipment  may 
be  installed  by  the  farmer  himself,  is  more  likely  to 
urge  such  equipment  than  if  she  were  dependent  on 
the  average  country  hardware  store  for  the  idea. 
When  one  stops  to  consider  that,  as  one  man  remarked, 
"There's  a  copy  of  this  year's  catalog  on  every  parlor 
table,"  and  that  it  is  an  interesting  bit  of  literature,  it 
is  not  surprising  how  great  a  demand  can  be  created 
for  all  sorts  of  things. 

7.  Pricing. ^The  usual  practice  in  mail-order  work 
is  to  keep  under  the  average  retail  price.  In  reply 
to  a  direct  question  "Are  mail-order  prices  always 
lower  than  retail  prices?",  an  officer  of  a  mail-order 
house  said  to  the  writer: 

For  some  classes  of  goods,  yes.  For  others,  no.  A  mail 
order  house  can  usually  sell  you  a  cream  separator,  farm  im- 
plement or  similar  article  for  less  money  than  a  retail  store, 
due  to  economies  of  operation  and  distribution.  On  some 
lines,  when  you  consider  the  shipping  charges,  the  saving  is 
on  the  side  of  the  local  store.  However,  I  firmly  believe  that 
the  real  reason  for  the  growth  of  the  mail  order  business  is 
the  fact  that  people  in  rural  communities  have  been  able  to 
save  money  over  local  retail  prices  by  ordering  by  mail. 

Mark-downs  in  price  are  less  common  than  in  other 
retail  establishments.  It  is  quite  customary  in  retail 
stores  to  mark  such  articles  as  women's  wear  at  30 
per  cent  mark-up  on  retail  price  at  the  beginning  of 
the  season,  in  order  that  after  reductions  have  been 


MAIL-ORDER  HOUSE  327 

made  later  in  the  season,  a  desired  average  mark-up 
of  25  per  cent  may  be  obtained.  jNIail-order  houses 
do  not  find  reductions  necessary,  and  so  are  enabled 
to  mark  the  goods  from  the  beginning  at  the  mark-up 
which  it  is  desired  to  maintain.  Some  reductions, 
however,  are  necessary  in  the  case  of  overstocks, 
broken  lots  and  slow-selling  styles,  and  for  this  pur- 
pose the  National  Cloak  and  Suit  Company  main- 
tain a  retail  store  thru  which  such  goods  are  sold. 
In  this  "outlet,"  as  it  is  called,  price  reductions  are 
not  as  radical  as  in  the  average  department  store 
under  like  circumstances.  Goods  are  seldom  sold  be- 
low cost,  whereas  in  a  department  store  prices  are  fre- 
quently cut  much  below  the  actual  cost. 

8.  Stockkeeping . — Each  line  of  merchandise  is  car- 
ried in  stock  in  its  own  departments,  just  as  in  a 
general  store  the  active  and  reserve  stocks  are  gen- 
erally combined.  Carefully  systematized  standard 
shelving  is  used  and  the  whole  problem  of  storing 
and  handling  merchandise  has  been  worked  out  to 
a  fine  point.  "Tickets"  calling  for  the  goods  on  the 
customers'  orders  are  sent  thru  each  department  on 
schedule,  and  extraordinary  efficiency  in  filling  these 
orders  has  been  developed.  Cumulative  inventories 
of  each  stock  are  carried  and  these  are  constantly 
checked  by  clerks,  so  there  is  little  possibility  that 
an  error  in  the  cumulative  inventory  will  remain  un- 
checked long  enough  to  cause  trouble.  The  stock- 
keeping  and  recording  system  in  a  large  mail-order 
house  is  a  marvel  of  efficiency. 


328  RETAIL  MERCHANDISING 

9.  Sales  promotion. — Altho  it  is  generally  thought 
that  the  mail-order  house  uses  every  possible  means  to 
obtain  business,  upon  analysis  it  is  found  that  very 
little  sales-promotion  work,  aside  from  mailing  a  large 
catalog  twice  a  year,  is  really  done.  The  mailing  lists, 
once  obtained  by  advertising  or  by  purchase,  are  con- 
sidered worth  at  least  ten  dollars  per  name,  and  every 
precaution  is  taken  to  conserve  the  good-will  of  those 
who  once  buy.  In  fact  the  National  Cloak  and  Suit 
Company  find  that  70  per  cent  of  their  business  is 
repeat  business.  Of  course  this  means  that  the  busi- 
ness is  obtained  at  the  small  cost  of  two  printed  cat- 
alogs a  year. 

It  is  safe  to  predict,  however,  that  mail-order  houses 
will  do  more  in  the  coming  ten  years  in  the  way  of 
sales  promotion.  Customers'  lists  are  likely  to  be- 
come as  active  as  subscription  lists  and  other  lists, 
where  constant  circularization  is  done  to  influence 
purchase.  But  there  must  also  come  a  means  of  build- 
ing the  organization  to  keep  pace  with  the  growth. 
During  the  past  ten  years  few  mail-order  houses  could 
have  absorbed  much  more  business,  and  extensive  di- 
rect advertising  might  have  proved  overwhelming  to 
the  organization  and  thus  more  destructive  than  bene- 
ficial. One  of  the  cardinal  rules  in  mail-order  work 
is  to  anticipate  the  results  from  each  offering,  and 
provide  the  organization  to  take  care  of  it  promptly. 
Naturally,  as  long  as  all  the  business  that  can  be  han- 
dled is  being  obtained,  intensive  sales-promotion 
work  is  both  unnecessary  and  undesirable. 


MAIL-ORDER  HOUSE  329 

10.  Advertising. — Once  the  customers'  lists  are 
fairly  well  started,  comparatively  little  advertising  in 
newspapers  and  magazines  is  done,  and  this  is  limited 
to  some  special  proposition  which  is  being  introduced, 
or  which,  because  of  some  peculiar  features,  does  not 
lend  itself  to  sale  from  a  large  catalog.  An  illustra- 
tion of  this  fact  is  found  in  the  current  advertising  of 
the  Encyclopedia  Britannica  by  Sears,  Roebuck  and 
Company. 

11.  The  catalog. — The  fundamental  rules  of  mail- 
order merchandising  affect  the  building  of  each  cat- 
alog. All  copy  must  be  of  the  "reason-why"  type  and 
must  be  written  in  simple,  interesting  language. 
Complete  facts  must  be  given,  for  the  reader  will 
take  time  to  study  the  description  who  might  not  listen 
patiently  to  one  given  orally  by  a  retail  merchant. 
A  certain  percentage  of  illiterate  customers  are  an- 
ticipated, and  for  them  illustrations  are  added  which 
tell  the  story  over  again  in  picture  form.  As  the  mail- 
order house  usually  offers  a  "wide-open"  guarantee, 
descriptions  must  be  expressed  in  language  so  exact 
that  there  cannot  possibly  be  any  danger  of  a  mis- 
understanding. 

In  making  up  the  sales  plan  for  each  department, 
an  allowance  of  space  is  made,  with  its  relative  value. 
Each  buyer  works  up  the  description  of  the  articles 
he  wishes  to  include,  and  turns  it  in  with  the  mer- 
chandise for  comparison  and  for  the  making  of  the 
illustrations.  The  advertising  manager  then  revises 
each  page  of  copy.     Any  disputes  between  the  buyer 

XIX— 23 


330  RETAIL  MERCHANDISING 

and  the  advertising  manager  are  settled  by  the  mer- 
chandise manager,  under  whom  both  work. 

Past  experience  is  a  valuable  aid  in  the  development 
of  the  catalog.  A  quota  is  set  for  each  page,  for  each 
line  of  goods  and  for  different  sections  of  each  page. 
When  an  article  does  not  bring  enough  profitable 
business  to  earn  its  quota,  it  is  thrown  out  without 
further  fuss. 

Special  catalogs,  "flyers"  and  circulars  are  put  out 
at  more  or  less  regular  intervals.  A  special  Christmas 
gift  catalog  is  used  by  many  houses,  while  a  "flyer" 
may  be  sent  at  any  time  that  a  special  opportunity 
offers  or  business  seems  a  bit  slack. 

12.  Operating  the  busifiess. — One  large  house  re- 
ceives an  average  of  90,000  pieces  of  mail  a  day. 
These  are  delivered  in  special  mail  bags  by  the  com- 
pany's own  trucks  at  the  mail-opening  cage.  The 
postal  cards  and  other  unsealed  mail  pieces  are  sep- 
arated from  the  sealed  envelops.  Letters  are  opened 
by  machines  capable  of  handling  10,000  letters  an 
hour.  The  letters  are  examined  and  classified,  and  for 
each  letter  a  schedule  showing  the  departments  thru 
which  it  is  to  pass  and  the  time  it  is  to  leave  each  de- 
partment, is  attached  in  the  form  of  a  slip,  or  stamped 
on  the  back  of  the  letter.  All  letters  seeking  informa- 
tion, but  containing  no  orders  are  turned  over  to  the 
correspondence  department  for  reply.  Orders  for 
C.O.D.  or  instalment  purchase  are  sent  to  the  credit 
department  for  authorization.  Finally,  letters  ac- 
companied by  remittances  are  sent  to  the  indexer,  who 


MAIL-ORDER  HOUSE  331 

checks  each  one  as  to  descriptions,  and  assigns  an 
index  number  to  each  order.     A  record  is  made  of  the 
cash  received,  and  a  shp  is  attached  showing  such  re- 
ceipt.    The  money  is  turned  over  to  the  cashiers  for 
entry  and  deposit.     Next  it  goes  to  the  routing  de- 
partment where  the  freight  bill  is  headed;  the  de- 
tails of  each  item  are  added  when  shipment  is  actually 
made.     Then  the  order  with  the  freight  bills  is  sent 
to   the   entry   department,   where   a   ticket   is   made 
out  for  each  department  from  which  goods  are  re- 
quired.    Each  order  receives  a  basket  number  at  this 
point.     These  tickets  are  sent  to  the  pricing  depart- 
ment, where  prices  are  added.     The  original  order 
goes  to  the  letter  information  desk  while  the  tickets 
go  to  the  various  departments  where  an  "order  picker" 
selects  the  goods  desired  and  sends  them  with  the 
ticket  to  the  shipping  room.     The  goods  from  each 
department,  when  received  in  the  shipping  depart- 
ment, are  separated  according  to  basket  numbers  and 
each   order   is    assembled    in   its   own   basket.     The 
schedule  is  attached  to  each  ticket  so  that  all  goods 
on  order  are  required  to  reach  the  shipping  depart- 
ment  at   approximately  the   same   time.     Here  the 
goods  are  rechecked,  packed,  weiglied  and  shipped. 
In  the  meantime  the  original  order  is  acknowledged 
at  the  letter  information  desk,  and  any  questions  are 
answered.     In  case  the  merchandise  picker  is  unable 
to  ship  an  order  promptly  or  must  for  some  reason 
omit  an  item,  a  memorandum  is  sent  at  once  to  the 
letter  information  desk  as  a  basis  for  a  letter,  and  a 


332  RETAIL  MERCHANDISING 

notification  of  omission  is  sent  the  packing  depart- 
ment. From  the  letter  information  desk,  the  orig- 
inal order  goes  to  the  billing  department  where  the 
check  is  totaled  and  then  if  any  refund  is  necessary, 
to  the  banking  department.  Finally,  it  is  filed,  geo- 
graphically by  post  offices  and  alphabetically  under 
each  post  office. 

Various  special  modifications  in  operating  methods 
are  found  in  each  house.  For  instance,  the  National 
Cloak  and  Suit  Company  have  their  own  agents  in 
various  centers  who  receive  large  shipments  containing 
a  quantity  of  orders  and  reship  to  individual  custom- 
ers. The  orders  of  a  single  day  for  all  places  within 
the  first  two  parcel  post  zones  from  Ann  Arbor,  Mich- 
igan, are  sent  to  the  local  representative  in  one  large 
case.  Each  article  is  separately  packed,  addressed 
and  stamped  for  reshipment  from  Ann  Arbor  to  local 
and  nearby  points  by  parcel  post.  The  saving  in 
expense  is  not  important,  but  the  merchandise  reaches 
the  customer  in  much  better  condition  than  if  it  had 
been  sent  as  a  single  package  by  express  or  parcel 
post  from  New  York. 

As  has  been  previously  remarked,  the  systems  and 
particularly  the  machinery  used,  have  been  exceed- 
ingly well  worked  out  in  each  large  house.  But  after 
all,  there  must  be  the  human  element.  It  is  estimated 
that  the  average  order  passes  thru  fifty-five  or  sixty 
hands  in  its  schedule.  If  anyone  blunders  badly  the 
whole  machine  is  tied  up.  Therefore,  there  must  be 
constant  supervision  to  see  that  each  task  is  done  cor- 


MAIL-ORDER  HOUSE  ,     333 

rectly  as  well  as  on  schedule  time,  for  there  is  no  ad- 
vantage in  getting  an  order  thru  the  entry  department 
within  the  particular  ten  minutes  allotted  to  it  if  it  is 
not  properly  entered.  Consequently  each  large  or- 
ganization maintains  an  efficiency  staff  to  study  the 
system  and  develop  improvements,  a  great  corps  of 
department  and  section  heads — the  latter  having  on 
an  average  only  a  dozen  workers  to  supervise — and  in 
addition  an  elaborate  educational  system  for  the  train- 
ing of  both  old  and  new  employes. 

REVIEW 

What  are  the  chief  advantages  of  the  mail-order  house  in  re- 
tail selling? 

How  does  the  choice  of  a  location  and  building  for  a  mail-order 
house  differ  from  that  of  a  department  store? 

Describe   the  usual  development  of  the  mail-order  house. 

How  does  the  buying  policy  of  a  mail-order  house  diifer  from 
that  of  a  department  store? 

How  do  prices  compare  with  those  of  other  stores?  How  are 
they  fixed  and  how  are  overstocks  disposed  of? 

Why  have  mail-order  houses  done  little  general  advertising  or 
sales  promotion? 

What  are  the  requirements  of  the  catalog,  and  how  is  it  pre- 
pared? 

Describe  the  operations  of  filling  an  order. 


CHAPTER  XII 

THE  COOPERATIVE  STORE 

1.  Reason  for  the  cooperative  movement. — The  big 
idea  behind  the  cooperative  store  movement  is  to  sub- 
stitute the  "pull"  of  the  customer  for  the  "push"  of 
the  profit-maker.  The  "cooperators" — the  men  who 
are  interested  in  this  cooperative  store  movement — 
may  roughly  be  divided,  according  to  their  reasons  for 
joining  this  movement,  into  three  classes. 

1.  Small  consumers  who  are  forced  by  necessity  to 
economize  as  much  as  possible  on  the  necessities  of 
life. 

2.  A  group  of  high-minded  men  who  as  customers 
of  retail  stores  feel  there  is  considerable  waste  in  the 
present  system  of  distribution,  and  who  wish  to  bring 
about  more  social  efficiency, 

3.  A  group  of  men,  mainly  large  employers  of  the 
working  classes,  who  are  trying  to  advance  the  coop- 
erative movement,  thru  propaganda  work,  for  future 
betterment  and  social  reconstruction. 

If  a  cooperative  store  is  to  succeed,  a  good  deal 
of  missionary  work  is  necessary.  Contrary  to  the 
usual  impression,  it  is  far  more  important  to  select 
the  members  and  to  make  them  understand  the  co- 
operative movement,  its  ideals,  the  difficulties  that  will 
be  encountered,  and  the  kind  and  amount  of  coopera- 

334 


COOPERATIVE  STORE  335 

tion  required  of  each  member  than  to  pick  a  manager. 
Generally  in  small  communities,  this  work  is  done 
without  pay  by  volunteers  interested  in  the  cause. 
In  larger  communities,  however,  trained  organizers  or 
"missionaries"  are  engaged  for  the  work. 

Probably  the  oldest  and  best  known  cooperative 
store  is  that  organized  among  the  weavers  of  Roch- 
dale, England.  Its  success  is  probably  due  largely 
to  the  class  consciousness  in  England,  which  bands 
closely  together  the  people  of  one  station  in  life.  As 
we  have  little  of  this  spirit  in  America  it  is  not  so  easy 
to  hold  the  members  together.  The  moment  they  see 
an  independent  dealer  cut  prices  on  an  article,  they 
are  inclined  to  desert  the  cooperative  store,  even  if 
they  know  the  cut  is  only  a  bait,  or  a  "loss  leader,"  to 
break  up  the  trade  of  the  cooperative  store.  There- 
fore it  is  very  necessary  in  America  to  impress  new 
members  thoroly  with  the  cooperative  idea.  Most 
failures  in  cooperative  storekeeping  in  this  country 
have  resulted  from  a  lack  of  the  conviction  among 
members  that  they  should  give  the  store  undivided 
support. 

2.  Starting  a  cooperative  store. — In  America  many 
successful  cooperative  stores  started  as  small  buying 
clubs  consisting  of  about  a  dozen  members.  In  such 
an  organization  the  members  get  their  first  taste  of 
the  difficulties  to  come,  but  in  such  small  doses  that 
their  enthusiasm  is  not  dampened.  Usually  the  prof- 
its on  the  purchases,  instead  of  being  returned  to  the 
purchasing  members,  are  allowed  to  remain  in  the 


336  -      RETAIL  MERCHANDISING 

treasury  and  accumulate.  A  small  reserve  is  soon 
built  up,  which  is  very  helpful  when  the  group  decides 
to  open  a  store. 

This  trial  stage  is  most  advantageous;  in  fact  no 
cooperative  society  should  attempt  to  advance  beyond 
the  preliminary  or  buying-club  stage  until  it  has  or- 
ganized its  market — in  other  words,  its  membership. 
Occasional  trade  and  the  trade  of  those  who  will  de- 
sert the  movement  in  the  first  storm,  cannot  be 
counted.  Therefore  the  members  of  the  first  little 
group,  usually  a  dozen  or  so,  are  selected  one  by  one, 
in  order  that  they  uiaj  form  a  strong  nucleus  around 
wliich  the  larger  society  may  be  built. 

Generally  the  buying  club  does  not  open  a  store 
until  there  are  from  fifty  to  one  hundred  members. 
Each  signer  agrees  to  take  stock  to  the  value  of  from 
$5  to  $100,  paying  what  he  can  at  the  time  and  the 
balance  in  instalments.  At  least  $500  should  be  paid 
in  before  the  store  is  opened.  One  of  the  most  suc- 
cessful cooperative  societies,  that  of  INIontclair,  New 
Jersey,  waited  until  it  had  over  $6,000  paid-in  capital. 
Its  rapid  development  is  probably  due  partly  to  this 
fact.  The  capital  required,  however,  will  vary  with 
the  type  of  store;  of  course,  efforts  are  constantly 
made  to  bring  in  new  members  of  the  right  sort,  in 
order  that  the  working  capital  may  be  increased.  In 
some  cases,  there  are  two  classes  of  members,  one  con- 
sisting of  stockholders,  and  the  other  consisting  of 
those  who  pay  only  a  small  initiation  fee,  or  who  agree 
to  buy  a  certain  amount  of  goods  monthly. 


COOPERATIVE  STORE  337 

3.  Organizing  the  store. — As  soon  as  possible  an 
organization  meeting  is  held  and  a  lawyer  is  retained 
to  assist  in  the  incorporation.  Valuable  aid  in  the 
whole  development  can  be  obtained  from  the  officers 
of  other  cooperative  societies.  The  usual  officers — 
president,  secretary  and  treasurer,  as  well  as  a  board 
of  directors  or  an  executive  committee — are  elected. 
Naturally  the  board  of  directors  will  select  the  store 
manager  and  keep  a  close  watch  on  the  store's  busi- 
ness. There  is  usually  also  an  auditing  committee 
that  goes  over  the  books  of  the  store  manager  at  regu- 
lar intervals. 

The  store  should  not  develop  too  rapidly,  for  with 
it  must  develop  pubhc  opinion,  and  that  is  always  slow 
in  crystallizing.  The  percentage  of  failures  is  high 
at  best,  but  the  great  majority  of  them  are  among 
stores  that  have  grown  faster  than  a  membership  of 
the  right  kind  and  a  public  opinion  of  the  sort  neces- 
sary to  success  could  be  built  up.  The  gradual  de- 
velopment, the  first  stage  of  which  is  represented  by 
the  buying  club,  is  the  best. 

A  somewhat  different  method  of  organization  is 
found  in  the  Nelson  Cooperative  Association  of  New 
Orleans.  A  few  years  ago  Mr.  Nelson  decided  that 
there  was  need  for  a  cooperative  store ;  he  tried  to  get 
others  interested  in  the  idea  but  failed.  Then  he  de- 
cided to  organize  a  store  first,  and  make  it  cooperative 
afterward.  He  started  one  little  store  and  gradu- 
ally added  several  more.  In  1914  he  organized  the 
group  into  a  cooperative  society,  with  shares  of  $5.00 


338  RETAIL  MERCHANDISING 

par  value  which  pay  seven  per  cent  dividends.  By 
September,  1916,  there  were  sixty  groceries  and  four 
meat  markets,  and  the  volume  of  business  transacted 
during  the  year  ending  that  month  was  over  a  million 
dollars. 

4.  Store  manager. — About  the  first  thing  the  board 
of  directors  must  do  is  to  select  a  thoroly  competent 
store  manager.  The  manager  must  not  only  know 
how  to  run  a  retail  store,  but  he  must  also  be  very  tact- 
ful, in  order  that  he  may  be  able  to  work  harmoniously 
with  the  members  of  the  association.  He  must  be  an 
enthusiastic  cooperator  himself,  and  must  be  thoroly 
familiar  with  the  cooperative  movement,  in  order  that 
he  may  advise  with  the  directors  and  the  members 
when  the  time  comes  to  outhne  the  business  policies. 

5.  Budget. — At  this  point  the  directors  should 
work  over  the  preliminary  estimates  of  working  capi- 
tal, sales  and  profits,  and  from  them  develop  a  budget 
for  operating.  In  a  cooperative  grocery  store  the  run- 
ning expense  should  not  amount  to  more  than  10  to 
14  per  cent  of  the  gross  sales.  The  experience  of 
other  cooperative  societies  is  always  of  value  in  figur- 
ing out  the  business  policies,  and  in  checking  up  the 
corresponding  budget  for  operating.  For  instance, 
many  cooperative  stores  get  along  at  the  beginning 
with  a  store  in  the  home  of  a  member  or  in  a  cheap 
basement.  Under  such  circumstances  the  budget  for 
rent  can  be  kept  down  to  the  minimum ;  it  can  be  in- 
creased later,  as  business  grows  and  better  accommo- 
dations are  needed  and  can  be  afforded.    Some  stores 


COOPERATIVE  STORE  339 

keep  their  rent  down  to  one  or  two  per  cent  of  their 
gross  sales. 

6.  Business  policies — location  and  equipment.— 
As  a  matter  of  fact,  the  general  business  policies  and 
the  budget  must  be  w^orked  out  at  the  same  time,  since 
each  may  change  the  other.  The  Montclair  Coopera- 
tive Society  opened  with  a  fine  store  because  its  work- 
ing capital  warranted  its  doing  so,  and  because  its 
class  of  trade  could  not  be  appealed  to  except  thru 
the  medium  of  a  modern  and  attractive  store  in  one  of 
the  best  retail  sections  of  the  city.  In  general,  how- 
ever, the  expense  for  rent  and  fixtures  is  kept  very 
low.  In  developing  a  cooperative  store  it  is  more  im- 
portant to  operate  a  very  neat  and  clean  store  than 
to  have  a  select  location  and  fine  equipment. 

7.  Buying  and  stochheeping. — Cooperative  stores 
generally  begin  with  a  grocery  line,  and  add  meat 
and  other  lines  as  they  become  estabhshed.  The  store 
manager  analyzes  his  market  as  carefully  as  if  he  were 
an  independent  merchant  just  starting  in  business. 
He  has  a  great  advantage  over  the  independent  dealer 
because  he  can  readily  estimate  the  exact  qualities  of 
merchandise  desired  by  every  family  among  his  pa- 
trons, as  well  as  the  amount  purchased  monthly  by 
each. 

Profits  in  cooperative  storekeeping,  as  in  every 
other  kind,  depend  much  on  keeping  the  investment 
in  stock  down  to  a  minimum  and  in  turning  over  the 
stock  as  frequently  as  possible.  There  is  no  way  to 
compete  with  chain  groceries  that  turn  over  their  stock 


340  RETAIL  MERCHANDISING 

nearly  every  week  except  by  doing  the  same  thing. 
Therefore  the  store  manager  must  buy  in  small  quan- 
tities so  far  as  this  kind  of  buying  permits  him  to  give 
fair  prices  and  to  keep  complete  stocks  of  standard 
articles. 

Most  managers  of  cooperative  stores  buy  from  the 
regular  jobbers  at  first,  as  the  manager  of  any  other 
store  does ;  but  sometimes  they  are  unable  to  do  so,  for 
some  jobbers  refuse  to  sell  to  cooperative  stores. 
Other  managers  have  succeeded  in  going  over  the 
heads  of  the  jobbers  altogether  and  buying  direct  from 
the  manufacturer,  in  many  cases,  as  chain  and  depart- 
ment stores  do.  The  method,  however,  is  not  so  im- 
portant as  the  price,  the  quality  and  the  service  that 
the  manager  obtains  from  his  source  of  supply, 
whether  it  be  manufacturer,  jobber  or  broker.  In 
Illinois  a  wholesale  society  was  recently  organized  by 
the  cooperative  stores  in  order  that  they  might  be  able 
to  buy  in  large  quantities.  They  estimate  that  the 
43  local  cooperative  stores  in  that  state  sell  at  least 
$2,000,000  worth  of  goods  a  year,  and  that  they 
can  save  over  $100,000  a  year  by  pooling  their  pur- 
chases. Such  buying  is  the  next  step  in  the  evolution 
of  the  cooperative  store  method.  Only  recently  a 
number  of  stores  in  New  York  State  have  also  formed 
a  wholesale  society  in  order  to  secure  the  large  dis- 
counts that  chain  stores  have  been  able  to  secure  from 
manufacturers. 

A  few  cooperative  stores  do  some  manufacturing. 
The   Nelson    Cooperative   Association   now   have   a 


COOPERATIVE  STORE  341 

creamery  of  their  own,  and  they  are  also  building  a  big 
bakery,  which  will  supply  bread  to  all  of  their  sixty 
stores.  Other  cooperative  stores  also  are  establishing 
their  own  bakeries,  and  some  are  even  planning  to  op- 
erate farms  that  shall  supply  the  stores  with  dairy 
products  and  vegetables.  The  activities  of  a  coopera- 
tive store  can  be  extended  indefinitely.  The  original 
cooperative  store  in  Rochdale,  England,  has  now  its 
own  fleet  of  steamships  for  the  importation  of  coffee, 
tea  and  other  products  not  grown  in  England. 

8.  Sales  policies. — Most  cooperative  stores  plan  to 
sell  at  the  regular  retail  prices,  and  then  pay  the  mem- 
bers substantial  dividends  on  their  purchases.  The 
Montclair  Cooperative  Society,  however,  plans  to 
meet  the  chain  stores  at  their  own  prices,  and  sells 
everything  at  just  as  low  a  price  as  possible.  It 
hopes  to  attract  in  this  way  a  larger  volume  of  outside 
trade  and  to  cut  down  the  overhead  expenses  by  in- 
creasing the  volume  of  sales.  It  has  found  that  the 
chain  stores  are  cutting  prices  very  low  on  only  about 
fifteen  or  twenty  articles,  and  since  these  articles 
constitute  only  five  per  cent  of  the  business  of  this  co- 
operative store,  it  feels  that  it  can  well  afford  to  meet 
the  chain's  prices.  One  cooperative  store  cuts  prices 
on  all  advertised  goods,  except  those  in  regard  to 
which  they  are  bound  by  a  definite  contract,  which,  of 
course,  they  respect.  Many  cooperative  stores,  how- 
ever, do  not  handle  any  advertised  brands. 

9.  Deliveiies. — The  members  of  a  new  cooperative 
society  are  usually  recruited  from  one  locality,  and 


342  RETAIL  MERCHANDISING 

from  within  a  small  radius,  so  that  they  can  conven- 
iently either  come  or  send  for  the  goods.  It  is  gen- 
erally wise  not  to  operate  any  delivery  system  at  first. 
Some  cooperative  stores  continue  on  this  plan,  and 
never  deliver  goods;  such  a  policy,  of  course,  cuts 
down  the  expense  greatly.  Other  stores,  however, 
operate  a  delivery  system,  but  try  to  keep  down  the 
expense  as  much  as  possible  in  other  ways.  People 
have  become  so  accustomed  to  having  goods  delivered 
that  it  is  very  hard  to  get  them  actually  to  come  to 
the  store  with  a  market  basket.  Sometimes  enthusi- 
astic cooperators  do  this  at  first,  but  after  the  novelty 
of  this  method  has  worn  off,  they  get  tired  of  it  and 
demand  a  delivery  service. 

A  number  of  cooperative  societies  have  made  an 
effort  to  distribute  the  expense  of  the  delivery  service 
equally  among  those  who  benefit  by  it.  One  coopera- 
tive store  keeps  track  of  the  number  of  deliveries  made 
to  each  of  its  customers,  and  deducts  seven  cents  for 
each  delivery  from  the  dividends  paid  at  the  end  of 
the  quarter. 

10.  Credit  'policy. — It  is  generally  assumed  that  if 
the  members  of  the  cooperative  society  are  really  in 
earnest  in  their  effort  to  reduce  the  cost  of  their  pur- 
chases, they  will  not  ask  for  credit  privileges.  Any 
credit  system  is  bound  to  add  from  one  to  three  per 
cent  to  the  cost  of  doing  business.  Moreover,  it  also 
requires  a  great  deal  of  discretion  on  the  part  of  the 
manager.  Therefore  cooperators  usually  consider  it 
unwise  to  adopt  a  credit  policy  in  any  new  store. 


COOPERATIVE  STORE  343 

Some  cooperative  stores,  however,  allow  their  members 
to  rim  a  charge  accomit,  which  must  never  exceed  the 
amomit  of  the  paid-up  shares  of  capital  to  which  they 
have  subscribed.  This  qualification,  of  course,  safe- 
guards the  store.  Sometimes  it  is  necessary  to  grant 
credit  for  a  week  at  a  time — when,  for  instance,  the 
members  are  mainly  working  men,  who  usually  have 
money  only  on  pay  day.  In  the  ordinary  store,  the 
chief  value  of  a  credit  sj^stem  is  that  it  attracts  cus- 
tomers to  the  store  and  leads  them  to  buy  everything 
at  the  one  store.  The  cooperative  feature  removes  the 
need  of  such  a  motive  for  credit. 

One  ver\'  successful  cooperative  store  actually  re- 
fuses to  allow  anyone  to  charge  goods.  One  member 
of  this  cooperative  society,  the  wife  of  a  millionaire, 
once  stopped  at  the  store  to  bu}^  a  few  things  for  din- 
ner. She  found  she  had  left  her  money  at  home,  and 
one  can  imagine  her  chagrin  when  she  realized  that 
she  could  not  charge  the  things  she  wanted.  She  had 
to  go  out  to  her  automobile  and  borrow  the  money 
from  her  chauffeur  in  order  to  buy  the  goods.  This 
store  maintains  a  system  of  cash  deposits ;  a  customer 
can  deposit  from  ten  to  fifty  dollars  at  the  store,  and 
then  have  small  purchases  charged  until  the  amount 
is  exhausted.  A  statement  of  purchases  and  of  the 
amount  of  deposit  on  hand  is  sent  to  each  customer 
every  Monday.  The  same  store  does  a  large  business 
in  telephone  orders,  which  are  delivered  "cash  on  de- 
liver5\"  The  goods  are  brought  back  to  the  store  if 
the  money  is  not  paid  to  the  driver.     About  one-third 


344  RETAIL  MERCHANDISING 

of  this  store's  business  is  done  over  the  counter  on 
a  cash  basis,  one-third  by  telephone  orders  and  cash 
on  delivery;  the  remainder  by  the  system  of  cash  de- 
posit. 

11.  Advertising. — Whether  or  not  the  cooperative 
store  shall  advertise  depends  on  whether  the  store  in- 
tends to  sell  to  members  only,  or  to  outsiders  as  well. 
A  number  of  cooperative  stores  believe  in  advertising, 
since  in  this  way  they  can  increase  the  volume  of  their 
business  and  thus  decrease  the  overhead  charges.  It 
is  very  often  possible  to  double  the  volume  of  the  busi- 
ness by  advertising  without  making  any  material  in- 
crease in  the  overhead.  Other  cooperative  stores, 
which  do  not  use  newspaper  advertising,  publish  a 
little  price  list  of  their  own  and  distribute  it  among 
their  members. 

12.  Salesmen  and  salaries. — The  success  of  the  co- 
operative store  will  depend  largely  upon  the  selection 
and  training  of  the  salesmen.  Courteous,  well-trained 
salesmen  will  always  be  a  big  help  in  keeping  the 
members  enthusiastic  about  the  store.  The  manager 
of  the  grocery  store  must  insist  that  the  clerks  always 
be  very  neat  and  clean,  and  that  they  wear  clean  white 
uniforms  whenever  possible.  The  men  in  the  meat 
department  of  the  grocery  store  should  be  especially 
careful  in  regard  to  cleanliness.  There  is  much  that 
the  manager  can  do  to  show  the  clerks  how  to  sell  more 
merchandise ;  he  can  also  teach  them  a  great  deal  about 
the  goods  they  are  selling.     Of  course,  his  problem  is 


COOPERATIVE  STORE  345 

the  same  as  that  which  the  manager  of  any  retail  store 
lias  to  handle. 

]\lost  cooperative  stores  feel  it  necessary  to  pay 
their  salesmen  on  a  straight  salary  basis,  altho  they 
try  to  treat  them  as  liberally  as  possible  in  regard  to 
the  amomit  of  salary,  their  vacations,  the  working- 
hours  and  the  like.  A  few  stores  follow  the  example 
of  the  cooperative  stores  in  Scotland,  in  making  a 
regular  practice  of  dividing  the  profits  wuth  the  em- 
ployes. For  instance,  IVIr.  Nelson,  in  New  Orleans, 
divides  twenty  per  cent  of  the  profits  of  the  stores 
with  his  employes,  giving  each  a  share  proportionate 
to  his  wages.  Thus  the  employes  receive  a  good  divi- 
dend, and  have  an  incentive  to  avoid  waste,  to  prac- 
tice economy  and  to  increase  trade  by  being  honest 
and  courteous.  They  have  the  saving  on  the  cost  of 
goods  which  they  purchase,  as  customers,  and  the  in- 
terest on  salary,  as  employes.  This  plan  could  un- 
doubtedly be  adopted  very  successfully  in  other  co- 
operative stores. 

13.  Accounting  system. — It  is  a  costly  policy  for 
a  cooperative  store  to  try  to  economize  too  much  on 
accounting.  A  good  accounting  system  will  in  almost 
every  instance  more  than  pay  for  itself,  not  only 
by  furnishing  facts  and  figures  in  regard  to  the  busi- 
ness that  is  being  done  every  day,  but  also  by 
indicating  tendencies  in  the  business.  In  short,  it 
will  enable  the  manager  to  make  the  store  even 
more    profitable   in   the   future.     Naturally   the   co- 

XIX-24 


346  RETAIL  MERCHANDISING 

operative  store  needs  practically  the  same  kind  of 
accounting  system  as  any  other  kind  of  retail  store, 
altho  it  is  not  necessary  to  have  an  elaborate  system, 
inasmuch  as  most  cooperative  stores  do  not  have 
charge  customers. 

14.  Keeping  track  of  members'  purchases. — If  div- 
idends are  to  be  paid  on  the  purchases  it  is,  of  course, 
necessary  to  keep  careful  record  of  the  purchases 
made  by  each  member,  and  the  total  made  by  all 
members.  The  Cornell  Cooperative  Society,  which 
maintains  a  cooperative  store  for  the  benefit  of  the 
Cornell  University  students,  has  worked  out  a  very 
interesting  plan  for  doing  this.  They  have  a  cash- 
register  system,  which  prints  little  receipts  with  the 
amount  of  the  sale,  tlie  date,  and  the  name,  "Cornell 
Cooperative  Society,"  stamped  at  tlie  top.  A  receipt 
is  given  to  the  student,  who  signs  his  name  across  it 
in  ink,  and  then  deposits  it  in  a  box  placed  near 
the  cash  register  for  that  purpose.  These  receipts  are 
allowed  to  accumulate  in  this  box  until  summer. 
Two  extra  clerks  are  employed  to  sort  the  receipts  and 
figure  up  the  amount  of  each  student's  purchases. 
When  the  student  comes  back  in  the  fall,  he  simply 
has  to  call  and  get  the  eight  per  cent  dividend  that  the 
store  pays  on  his  purchases. 

Other  cooperative  stores  maintain  a  system  whereby 
the  purchases  of  each  customer  are  recorded  in  two 
books — one  kept  by  the  manager,  and  the  other  by 
the  customer  himself.  Then,  at  the  end  of  the  quar- 
ter, the  customer  brings  his  book  in  and  has  it  audited 


COOPERATIVE  STORE  34T 

and  checked  with  the  books  of  the  manager.  This 
system,  of  course,  involves  a  little  more  trouble  and 
expense  than  the  one  described  immediately  above. 

A  third  system  requires  that  each  sales  ticket  be 
made  out  in  duplicate.  The  original  is  given  to  the 
customer,  and  the  duplicate  is  turned  in  by  the  clerk 
to  the  manager's  office  at  the  end  of  the  day.  After 
the  manager  has  checked  up  the  tickets,  he  turns  them 
over,  with  his  tabulated  statement  of  the  day's  sales 
and  his  receipt  from  the  bank  for  money  deposited,  to 
the  treasurer  or  the  financial  secretary  of  the  society. 
The  latter  makes  up  the  dividend  statement  of  each 
member  quarterly,  and  this  the  member  can  verify 
by  checking  against  it  the  sales  tickets  that  he  re- 
ceived with  his  purchases. 

15.  Distribution  of  ijrofits. — All  cooperative  stores 
that  have  a  shrewd  management  try  to  accumulate  a 
surplus  as  soon  as  possible.  They  usually  do  this  by 
setting  aside  a  good  part — say,  ten  per  cent — of  the 
profits  each  year  until  a  comfortable  surplus  is  built 
up.  Of  course,  in  some  years  it  will  be  necessary  to 
put  a  part  of  the  profits  back  into  the  business,  but 
ordinarily  the  profits  will  be  divided  up  between  the 
owners  of  the  stock  and  the  customers. 

The  big  difference  between  the  financial  plan  of  co- 
operative stores  and  that  of  other  stores  is  that  in  a  co- 
operative store  capital  is  simply  paid  a  small,  rea- 
sonable rate  of  return,  and  after  that  all  profits  are 
divided  pro  rata  among  the  purchasers.  In  private 
business  all  profits,  of  course,  go  to  tlie  stockholders. 


848  RETAIL  MERCHANDISING 

The  amount  of  the  profits  to  be  divided  can  be  easily 
determined,  as  well  as  the  total  sales  for  the  quarter 
or  the  half  year.  It  is  then  very  easy  to  determine 
the  amount  of  the  dividend  that  can  be  paid  on  the 
purchases.     This  dividend  is  usually  paid  in  cash. 

Members  are  usually  allowed  to  buy  stock  on  the 
partial-payment  plan.  In  such  cases  their  dividends 
on  purchases  are,  of  course,  credited  as  a  payment  on 
the  stock  until  the  stock  is  fully  paid  for.  Thus  a 
member  can  pay  for  his  stock  out  of  the  dividend  on 
his  purchases. 

REVIEW 

What  persons  usually  undertake  the  establishment  of  coopera- 
tive stores?  What  is  the  nature  of  the  "missionary"  work  which 
should  precede  the  founding  of  the  stores  ? 

Why  should  care  be  exercised  in  the  selection  of  members? 
Of  a  manager? 

What  principles  should  be  followed  as  to  buying  and  stock- 
keeping?     As  to  deliveries?     As  to  credit?     As  to  advertising? 

Explain  the  special  requirements  for  the  accounting  of  a  co- 
operative store. 

Describe  methods  followed  in  the  distribution  of  profits. 


INDEX 


Accountiug, 

Stock  keei*ing  systems  aid  retailers, 
94-95;  Operating  division,  103, 
114-19;  Cashier's  office,  119: 
Jobbers  who  manufacture,  127- 
28;  Semi  jobbing,  132;  Retail 
merchants'  accounts,  221;  Rela- 
tion to  stock  keeping,  221-22; 
Harvard  System  of  Accounts, 
293 ;  Prominent  companies'  free 
information  on,  294;  Chain-store 
system,  316-18;  Cooperative 
stores,    345-46 

Advertising, 

Jobbing  houses,  80-89;  Develop- 
ment, 81;  Jobber,  functions  of, 
81-82;  Service  illustrated,  83; 
Manufacturing  and  semi-jobbers, 
M3-84;  Department  organization, 
84-85;  Selling  appeal,  85-87; 
Figuring  the  appropriation,  87; 
Mediums  to  select,  87-88;  Mis- 
cellaneous types,  88;  Direct  meth- 
ods, 88;  Catalogs,  specialists  for, 
88-89;  Manufacturing  jobbers, 
127;  Various  mediums,  269;  Fac- 
tors that  promote,  270;  Store 
service  must  be  right,  270-71; 
Newspapers,  271;  Continual  ver- 
sus intermittent,  271-72;  Dis- 
crimination in,  272 :  Ineffective 
methods,  273-74;  Copy  that  in- 
terests, 274-75;  Individuality 
and  distinction,  275-76;  Circu- 
lars and  letters,  276-77:  Store 
papers,  277;  Mediums  that  help, 
277-78;  Dealer  helps  and  win- 
dow disi)lays,  278-79,  281-82; 
Interior  display  methods,  279— 
81 ;  Department  store  practice, 
288-89;  Specialty  stores,  296- 
97;  Chain  stores,  312-13;  Mail- 
order houses,  329;  Coo])prative 
stores,  344 

Agriculture, 

Crops  affect  business  conditions, 
8-9:  Bureau  of  Crop  Estimates, 
9 


349 


Billing  Department, 
Operation    of,    115-16 

Brokers, 

Functions  of,  168;  Relation  to  com- 
mission merchants,  169;  Extent 
of  operations,  169;  Contract, 
170;  Commissions,  170:  Organi- 
zation   and    operation,    170-71 

Budgets, 

Estimating  a  basis,  39—40;  Com- 
pilation by  W.  P.  Hunger,  40; 
Checking  the  sections,  41-42; 
Summary  of  a  general  store,  205— 
07;  Merchandise  plan,  236-38; 
Cooperative    stores,    338 

Buyers, 

Buying-control  system,  49-52 ;  Mer- 
chandise manager  selects,  52— 
53;  Essential  qualifications,  53; 
Reviewing  the  market,  54;  Pur- 
chasing piethods,  54—56;  Scope 
of  authority,  56;  Cash  discount, 
56-57;  Sales  price  fixed  by,  57- 
58;  Branch  offices,  58-59; 
Branded  and  unbrandcd  goods, 
190-91;  Retail  merchandising 
methods  for,  231-52;  Act  as 
merihauts,  251-52 
See    also   Cooperative   Jobbing 

Buying, 

Judgment  needed,  231;  Organiza- 
tion for,  231-32;  Merchandise 
analyses,  232  ;  Lines  of  goods  con- 
sidered, 233-34;  Apportioning 
stock  investments,  234-30;  Price 
and  style  range  determined,  235; 
Community  needs  met,  235-30; 
Merchandise  plan,  236-38:  Turn 
over,  how  determined,  2:i8-39; 
Gross  profit,  how  figured,  239- 
40;  Turn  over  a  merchandise  fac- 
tor, 240-43;  Allotment  for,  243; 
Study  of  market  and  wholesal- 
ers, 243—44;  Purchases  concen- 
trated, 245:  Interviews,  courtesy 
in,  246;  Quality  tests,  246-47; 
Price  and  values,  247;  Cash  dis- 
counts, 247-49;  Style  element, 
249;     Stocking    new    lines,     249— 


350 


INDEX 


Buying — continued 

50;  Estimating  sales  price,  250; 
Profit  defined,  251 ;  Buyer  as  a 
merchant,    251-52 


Chain  Stores, 

Competition,  and  advantages  from, 
184-85;  Selling  field  analyzed, 
298-99;  Merchandising  policies, 
299-300;  Store  manuals  and 
booklets,  300;  Service  economies 
and  prices,  300 ;  Partnership 
plan,  301-04;  Financing  new 
stores,  301-02;  Organization  and 
operation,  302-04 ;  Corporation 
type,  304-05;  General  plan  of 
business,  305;  Real  estate  divi- 
sion, 305-06;  Buying  practice, 
306-07;  Supply  department, 
307;  Warehouse  service,  307-09; 
Special  sales  planned,  309;  Se- 
lection and  training  of  salesmen, 
309-11;  Promoting  interest,  311 ; 
Power  of  district  managers,  311- 
12;  Department  manager's  re- 
sponsibility, 312;  Advertising 
and  displays,  312-13;  Mail-order 
and  agency  business,  313-14; 
Store  manager's  duties,  314; 
Stockkeeping,  314-16;  Meat  mar- 
kets, system  illustrated,  315—16: 
Turnover,  316 :  Store  accounts, 
316—17;  Central  organization  ac- 
counting plan,  317-18 
Commission   Merchants, 

Extensive  employment  of,  158-59; 
Activities  and  compensation,  159; 
Contrasted  with  sales  agents, 
159-60;  Relation  to  factors,  160; 
Commission  rates,  160-61;  Con- 
tract, items  in,  161—64;  Organ- 
ization, 164-65;  Operations  of, 
l<;5-67;  Cotton-goods  trade,  166- 
67:  Export  commission  houses, 
167-68;  Merchandise  brokers, 
168 
Competition, 

Jobbing  methods  analyzed,  3—5,  17— 
21;  Trade  data  and  cooperation, 
18-20;  Price  policies,  25;  Re- 
tailer's territory,  176;  Analyz- 
ing the  selling  field,  181-83; 
Large  department  stores,  183- 
84;  Chain  stores,  184-85;  Mail- 
order houses,  185-86;  Advan- 
tages of,  186;  Specialty  stores, 
289-91 
Contract  Department, 

Record    keeping,    114—15;    Back    or- 


Contract    Department — continued 

ders,    114—15;    Future    deliveries, 
115;      Sales      agent's      authority, 
149 
Cooperation, 

Marketing  data,  sources  of,  16—21; 
Credit  information  promotes,  18- 
19;  Sales  policies,  23-24;  Sales- 
man methods  of,  78—79 ;  Retailer 
and  jobber,  90-102;  Basis  of 
good  business,  104;  Promoting 
merchandising    methods,    175—76 

See   also   Dealer   Cooperation 
Cooperative  Jobbing, 

Group-purchasing  plan,  134—35; 
Profit  distribution,  135;  Buying 
syndicate,  135-36;  Types  of  co- 
operative organizations,  136; 
Representative  concerns,  137; 
Organization,  137;  Stock  sub- 
scription methods,  137-39;  Vot- 
ing power,  139;  Dividends,  139- 
40;  One-man  control,  140;  Ad 
vantages  in  buying,  140-41;  Pur 
chase  problems,  141 ;  Commodi 
ties  handled,  141-42;  Stock 
keeping,  142;  Sales  methods 
142-43;  Returned  goods  and  ex 
changes,  143;  Prices,  143—44 
Credits,  144;  Delivery,  144 
Cooperative  Stores, 

Cooperators'  reasons  for  promot- 
ing, 334;  American  standards, 
335;  Initial  difficulties,  335-36; 
Selecting  members,  336;  Organ- 
ization methods,  337-38;  Man- 
ager's duties,  338;  Budget,  338; 
Location  and  equipment,  339; 
Buying  plan,  339-40;  Extent  of 
activities,  340-41;  Sales  policies, 
341;  Delivery,  341-42;  Credit, 
342-43;  Advertising,  344;  Sales- 
man types,  344;  Salary,  and 
profit-sharing,  345;  Accounting, 
345—46;  Dividends  on  purchases, 
346-47;  Profit  distribution,  347- 
48 
Credits, 

Uniform  basis  essential,  30;  Serv- 
ice fee  for,  31;  Dating  of  in- 
voices, 31—32;  Trade  acceptances, 
32;  Returned  goods,  33-34; 
Function  of  credit  department, 
45;  Past-due  accounts,  45—46; 
Credit  man's  service,  92;  Claims 
for,  116;  Crediting  accounts, 
119;  Terms  of  manufacturing  job- 
ber, 127;  Cooperative  organiza- 
tions, 144;  Factor's  form  of 
agreement,    154;    Returned    goods 


INDEX 


351 


Credits — continued 

and  refunds,  193-95;  Retailer's 
policy  of,  195;  Cooperative  stores, 
:i42-44 

Cycles  of  Trade, 

Business   readjustments,    7—8 


Dealer   Cooperation, 

Jobber's  service.  90-91;  Kinds  of, 
91;  Problems  to  solve,  91;  Credit 
department  helps,  92 ;  Dealer 
aids,  92-94;  Advertising  clubs, 
93-94;  Accounting  and  store  sys- 
tems, 94—95;  Advertising  service, 
95-96;  House  organs,  96,  98; 
Helping  the  retailer,  methods  of, 
97;  Correspondence  courses,  97; 
Sales  demonstrations,  97-98; 
Soles  contents,  98;  Dealer  litera- 
ture, 98;  Merchandise  informa- 
tion, 99;  Trade  excursions,  99: 
Merchants'  weeks,  99-100;  Check- 
ing service,  100-01;  Report 
cards,  101 
Deliveries, 

Advertising  value,  197;  Problems 
of,  197;  Inspectors  and  wrappers, 
219;  System  needed.  220:  De 
partment  stores,  286;  Coopera- 
tive store  plan,  342 
Departmental  Organisation, 

^lilitary    type,     36;     Marshall    Field 
and   Company,    36-37;    Functional 
organization,      37-38:       Tendency 
toward,    202-03 
Department  Stores, 

Marshall  Field  and  Company's  or 
ganization,  36-37;  Advantages  of 
functional  organization,  37-38: 
Buying-control  system,  49-51 : 
Stock  room  supervision,  59—60 : 
^lodern  merchandising,  intro- 
duced by.  175;  Competitors  of 
general  stores,  183-84;  Wana- 
maker's  policies,  198-99;  Devel 
opment,  from  general  store  meth- 
ods, 283;  Selling  field  analysis, 
284;  Organization  and  financing. 
284-85;  Problems  in  operating, 
285-86;  Delivery  systems,  286; 
Mailorder  department,  287;  Mer 
ehandise  office  a  necessity,  287- 
88;  Advertising,  how  apportioned, 
288-89;  Specialty  shops,  295 
Discounts, 

Uniform  policy,  26-27;  Primary 
purposes  of,  27;  Wide  variations. 
27;  Cash  discount,  28;  Trade 
abuses,    28;     Extra    discounts    on 


Discounts — continued 

large  orders,  29;  Drop  shij)- 
ments,  29-30;  Invoice  dating, 
31-32;  Price  book  changes,  73; 
Retail  buyers'  profits,  247-48; 
Credit   practice    for,    248-49 

Displays, 

Advertising  helps,  278-82;  Impor- 
tance of,  278-79;  Interior,  guid- 
ance for,  279-80;  Attractive 
store  methods,  280-82;  Window 
displays,  281-82;  Chain  stores, 
313 

Drop   Shipments, 

Discount  policy  of,  29—30;  Cooper- 
ative  warerooms,    144 

Economics, 

Production  of  iron  a  guide  to  busi- 
ness,    9 ;     Consumption     capacity, 
10—11;     Studying     the     consumer, 
12-13 
Educational  Training, 

Retail  salesmen,  223—24;  Store  sys- 
tem taught,  225-26;  Efficiency 
bulletins,  227;  Junior  courses, 
228;  Public  schools  cooperate, 
229;  Successful  results,  230 
Efficiency, 

Meaning    of.    in    organizations,    200— 
01;     Training    systems    for    sales- 
people,    224-26;     Efficiency     bul- 
letins,   227 
Employment, 

Problems      of     operating     divisions, 
104-05;        Promotion        methods, 
105;   Wage  standards,   106 
Export    Commission   Houses, 

Number  of,  167;  Related  activities, 
168 

First  National  Stores, 

Dry-goods    chain.     182 
Functional   Organization, 

Outgrowth  of  departmental  system, 
37;  Apportionment  of  functions, 
38-39;    Financial   division,    39 

House  Manager, 

Supervises  operating  divisions.  103- 
04 
House   Organs, 

Service  to  retailer,  96,  98;  Dealer 
literature,  98 

Inventories, 

PeriH-tual  system,  61-62;  Physical 
inventory    methods,    62—63 


352 


INDEX 


Invoices, 

Policy  of  dating,  31-32;  Profit  and 
cost  statistics,  116;  Packing 
clerk's  duties,  120-21;  Retail 
buying,   256 


Jobbers, 

Analysis  and  revision  of  methods, 
3-4;  Selling  field,  4-7;  Freight 
and  transportation,  5—6 ;  Radius 
for  efficient  service,  6—7 ;  Read- 
justment periods.  7-8;  Crops  af- 
fect, 8-9;  Guides  and  reports, 
9-10;  Commodity  consumption, 
10-14;  Judging  the  market,  11; 
Commercial  surveys,  12—16; 
Retailers,  classification  of,  13- 
16;  Reports  from  salesmen,  17; 
Cooperation  and  competition,  17- 
21;  Business  policies,  22-34; 
Sales  supervision,  65-79 ;  Adver- 
tising practice,  80-89;  Preparing 
the  catalog,  88-89;  Cooperation 
with    retailers,    90-102 

See    also    Manufacturing    Jobber 

See    also    Semi-Jobbers 


Loss  Leaders, 

Questionable    sales    policy,    25-26 


Mail-Order  Houses, 

Activities    of,     175,     176;     Competi- 
tion   from,    and    advantages,    185— 
86;    Selling    field    analyzed,    319- 
20;     House    policies    for    service, 
320-21;    Suitable   locations,    321- 
22;   Labor  problems,   322;   Organ 
ization,    323;    Financing    and    au 
diting,      323-24;      Buying      plan 
324;    Profits,    325;    Creating    de 
mand,       325-26;       Prices,       326 
Stockkeeping,       327 ;       Promoting 
sales,      328;      Advertising,      329 
Building     the     catalog,      329-30; 
Mail  and  order  department,    330- 
33;    Routing    shipments,    331-32; 
Efficiency   systems,   333 

Manufacture, 

Market  analysis,  3-7;  Estimating 
consumption,  10-13;  Information 
on  retailers.  16;  Competition 
studied,  17-21;  Jobber  advertis- 
ing, 80-89;  Dealer  aids,  90-102; 
Jobbers  who  manufacture,  122- 
28;  Selling  agent  and  distribu- 
tion. 146-53;  Factor's  method  of 
financing,    153-57 


Manufacturing  Jobber, 

Definition  of,  122 ;  Reasons  for 
manufacturing,  122-24;  Organ- 
ization plans,  124-25;  Separate 
factory  system,  125;  Production 
methods,  126;  Stockkeeping. 
126;  Advertising  and  sales,  12<i- 
27;  Credit  inducements,  127; 
Accounts,  127;  Price  methods, 
128 

Marketing, 

Modern  methods  analyzed,  3-4 ;  , 
Jobbers'  selling  field,  4-6;  Shijv 
ping  costs,  4-5;  Jobbers'  terri- 
tory, 6-7;  Cycles  of  trade,  7-8; 
Crop  considerations,  8—9 ;  Guides, 
and  financial  reports,  9-10;  Con- 
sumption estimates,  10—14;  Re- 
tailers classified,  14-17;  Sales- 
men's reports,  17;  Meeting  com- 
petition, 17-21;  Business  poli- 
cies, 22—34;  Necessity  for  adver- 
tising, 80-89;  Dealer  cooperation. 
90-102 

Merchandise   Plan, 

Budget   for  retailers,   236-38 

Merchandising  Policies, 

Two  kinds  of.  22;  Sales  appeals. 
22-23;  Marketing,  and  sales  sys- 
tem, 23-24;  Price  policy,  24: 
Locality  price,  24;  Competitive 
prices,  25;  Loss  leaders,  25-26; 
Problem  of  price  apportionment, 
26;  Discounts,  kinds  of,  26-30; 
Credits,  30-31;  Invoices,  dating 
of,  31-32;  Trade  acceptances. 
32;  Crediting  returned  goods. 
33-34;  Statement  of,  necessary. 
187;  Kinds  of,  187;  Class  of 
trade,  188-89;  Basis  of  appeal. 
189-90;  Buying,  190-91;  Price 
maintenance,  191-92;  Methods 
for  slow  sellers,  192-93;  Re- 
funds on  goods  returned.  193— 
95;  Credits,  195;  Adjustments, 
195-96;  Deliveries,  197;  Wana- 
maker  creed.  197-99 
Merchandising  the  Business, 

Functional  divisions.  48:  Merchan- 
dise office,  48-49;  Buying-con- 
trol  system,  49-52 ;  Slow  sellers, 
method  of  indicating,  52;  Buyers, 
qualifications  of,  53 ;  Market, 
buyer's  activity  in,  54—56;  Dis- 
count rates,  56-57;  Fixing  sales 
prices,  57-58;  Branch  office, 
services  of,  58-59:  Stockkeeping. 
59—61 ;  Perpetual  inventories, 
61-62 ;  Physical  inventories,  62- 
63 


INDEX 


353 


Middlemen, 

Classification      of      functions.      146- 
57:    Selling  agents.    147-53:    Fac- 
tor's relation  to  client,   154-57 
MiU  Agents, 

Services  in  distributing,  152- 
52 

Nelson   Cooperative   Association, 

Organization  methods  of,  337-38: 
Activities  extended,  340-41;  Di- 
vides  profits   with   employes,    345 

Operating  and  Becording, 

Apportioning  the  employes,  209; 
Superintendent,  209-10;  Location 
important,  210;  Type  of  build- 
ing, 210-11;  Store  front,  211; 
Lighting  and  heating,  211-12; 
Service  equipment,  212-14;  Per- 
sonnel, organization  of,  214-15; 
Selecting  employes,  215;  Train- 
ing and  welfare  work,  216;  Wage 
systems,  216-18;  Floorwalkers 
and  managers,  218;  Inspectors 
and  wrappers,  219;  Deliveries, 
219-20;  Office  manager,  220;  Ac- 
counting and  stockkeeping,  221- 
22 
Operating  Division, 

Duties  of,  103;  House  manager, 
103-04;  Employment  problem, 
104-05;  Setting  standards,  105- 
06;  Wage  systems,  106;  Instruc- 
tion, and  welfare  work,  107;  Of- 
fice departments,  107-21;  Order 
department  and  registry,  108-13; 
Traffic,  113-14;  Contracts,  114- 
15:  Billing,  115-16;  Claims, 
116;  Profit  and  cost.  116-18; 
Bookkeeping,  118-19;  Cashier, 
119;  Warehouse,  119;  Receiving 
department,  119-20;  Packing 
room,  120-21;  Shipping,  121 
Order   and   Registry   Department, 

Operating     division     routine,      108- 
10;      Timing      method,      110-11; 
Form    of    report.    111,    112;    Mail 
orders,    111-12 
Organization  Charts, 

Wholesale     dry-goods     budget,     40; 
Department     store     budget,     203, 
205-07 
Organizing  and  Financing, 

Past  history,  35;  Military  organiza- 
tion, 36-37;  Functional  type,  37- 
38;  Financial  division,  39;  Bud- 
get estimates,  39-40;  Check- 
ing   the    budget,    41-42;    Reports 


Organizing  and  Financing — continued 
audited,  43-44 ;  Credit  accounts, 
45;  Past-due  accounts.  45-46; 
What  efficiency  implies,  200-01; 
Business  functions  classified, 
201-02;  Departmentization,  202- 
03;  Department  store  chart,  203, 
206-07;  General  manager,  203- 
04;  Financing  a  store,  204;  Sum- 
mary of  budget,  205-07 ;  Count- 
ing  room,    207 


Packing  Department, 

Organization      of,      120;      Invoicing, 
121 
Penney  Department  Stores, 

Partnership     organization,     301—04; 
Securing         partners,  301—02; 

Operation,        302 ;        Advantages, 
303-04;     Mail-order     department, 
313 
Population, 

Factor      in      retail      merchandising, 
178-80;    Sources    of    information, 
178;     Groups    classified,     179-80; 
Trade    zones,    180 
Price, 

Merchandising  policy,  24;  Locality 
price,  24-25;  Competitive  sys- 
tems, 25;  Jobber's  primary  func- 
tion, 26;  Training  salesmen,  72; 
Price  books,  73-76;  Salesmen's 
compensation,  74-77;  Base  price 
and  average  system,  75;  Profit- 
sharing  plans,  76-77;  Advertis- 
ing costs,  87;  Manufacturing  job- 
bers, 128;  Semi-jobbers,  132;  Co- 
operative jobbing,  143—44;  Sell- 
ing agent's  price  scale,  148; 
Competition  among  retailers, 
191-92;  Retail  merchants,  247; 
Markup  plan,  250;  Salespeople 
assist  in  fixing,  250,  256;  Mail- 
order houses,  326-27 
Price  Book, 

Salesmen's  use  of,   73-76;   Grocers' 
base     price,     75:     Cost    and     list 
l)rices,    75-76;    Dry  goods   system, 
76-77 
Profit  and  Cost  Department, 

Operation  of,  116-18;  Cards  and 
statistics,  117:  Sales  statement, 
117-18;  Retail  buying,  251;  Co- 
operative stores  share,  345,  347— 
48 


Receiving   Department, 
Duties  of,   119-20 


354 


INDEX 


Reports, 

Auditor's    statements,    42-44;    Rep- 
resentative     system      of,      43-44; 
Sales    departments,     77-78;     Job- 
bers'   salesmen  cooperate,   91 
Reserve  Stocks, 

Wasteful     practice,     258-60;     Prob- 
lems  in    1916,    259;    Arrangement 
of,    260-61 
Retailers, 

Jobbing  methods  revised,  3-21 : 
Business  cycles,  7-8;  Survey  of 
consumers,  12-13;  Classification 
of,  13-16;  Sources  of  informa- 
tion on,  16-17;  Advertising 
service,  81-88;  Jobber  coopera- 
tion, 90-102;  House  organs  help- 
ful, 96,  98;  Methods  of  helping, 
97-99;  Trade  trips,  99;  Dealer 
service,  checking  results,  100-01 
Retail  Selling  Field, 

Old  and  new  methods,  175-76; 
Survey  and  analysis,  176:  Gen- 
eral store  as  a  type,  177;  Plan- 
ning a  store,  177;  Information 
on  population  and  consumer  de- 
mand, 178-79;  Population  groups. 
179-80;  Trade  zone  analysis, 
180-81;  Suburban  trade,  181; 
Competitors,  181-82;  Selecting 
sites,  182-83;  Gathering  data, 
183;  Department  store  competi- 
tion, 183-84;  Chain-store  com- 
petitors, 184-85;  Mail-order  com- 
petitors, 185-86;  Advantages  of 
competition,  186 
Returned  Goods, 

Credit  policy  for,  33;  Solution  to 
problem,  33-34;  Cooperative  or- 
ganizations, 143;  Refunds  in  re- 
tail stores,   193-95 


Sales  Appeals, 

Advertising    slogans,    22-23;     Illus- 
trations    of,     83,     85-86;     Retail 
store   policy,    189-90 
Salesmen, 

Jobbing  methods  analyzed,  3-21; 
Planning  distribution,  12-14; 
Studying  the  consumer,  13-16; 
Reports  on  dealers,  17;  Present 
and  past  methods,  65-79;  Inten- 
sive methods,  66;  Sales  man- 
ager's office,  66-67;  Relation  to 
advertising,  67 ;  Classification  of 
territory,  68-70;  Successful 
groups,  70-72;  Cost  of  training, 
72;  Organization,  72-73;  Prices 
and  the  market,   73,   75-76;   Com- 


Salesmen — continued 

pensation,  74-77;  Record  depart- 
ment, 77-78;  Cooperation,  78- 
79;  Hovsf  advertising  helps,  80— 
89;  Jobber's  eooi^eration  with  re- 
tailers, 90-102;  Cooperative  job- 
bing, 143 ;  Department  store  em- 
ployes, 223;  Training  systems, 
224-27 
See  also  Selling  Agent  and  Factor 
Selling, 

Sales  organization,  65 ;  Modern 
methods  increase  sales,  66;  Of- 
fice manager's  duties,  66—67; 
General  plan,  67;  Territory,  di- 
vision of,  68-70;  Type  of  sales- 
men needed,  70-72 ;  Training 
salesmen,  72-73 ;  Price  books, 
73—74;  Compensation  systems. 
74-77;  Records  and  statistics, 
77-78 ;  Cooperative  measures. 
78-79 
Selling  Agent  and  Factor, 

Classes  of  middlemen,  146—47 ; 
Manufacturer's  agent,  147—48; 
Compensation,  148;  Price,  148; 
Delivery  charges,  148;  Contract 
rights,  149;  Classes  of  sales 
agents,  149-50;  Services,  150- 
51;  Organization,  151-52:  Fac- 
tory agent,  152-53 ;  Function  of 
the  factor,  153;  Agreement,  154: 
Factor's  relation  to  client  illus- 
trated, 154—55;  Compensation. 
155-56;  Factor's  organization, 
156-57;  Different  from  commis- 
sion merchant,  159,  160 
Semi-Jobbers, 

Definition     of,      129;     Reasons     for. 
129;   Types  of  organization,   129- 
31;     Stockkeeping,     131-32;     .Ac- 
counts,   132;    Pricing,    132 
Shipping  Department, 

Operation    of,     121;     City    delivery. 
121;    Cooperative  warerooms,   144 
Specialty  Stores, 

Policies  of,  289;  Analysis  of  terri- 
tory and  competition,  289-91 : 
Problems  of  city  stores,  290;  Lo- 
cation values,  291;  Marketing 
methods,  291-92 ;  Organization 
and  financing,  292;  Problems  of 
buying  for,  292;  Stockkeeping. 
292-93 ;  Accounting  systems,  con- 
tributors to,  293-94;  Personal 
service,  294;  Salespeople,  294- 
95;  Building  and  fixtures.  295: 
Prices  and  turnover,  295-96; 
Advertising,    296-97 


INDEX 


35J 


statistics, 

Bureau  of  Crop  Estimates,  9;  U.  S. 
Census  on  consumption  capacity, 
10-11;  Babson  reports,  11;  Sales 
departments,  66-67 :  Records 
and  sales  charts,  77-78;  Profit 
and  cost  statement,  116-18 

Stockkeeping, 

Practice  of,  59-60;  Care  essential, 
60;  Arrangement  of  rooms,  60- 
61;  Duties  of  stockkeeper,  61; 
Accounting  and  store  systems, 
94-95;  Manufacturing  jobber's 
system  of,  126;  Semi-jobber's 
method,  131;  Cooperative  job- 
bing, 142;  Analogy  to  retail  ac- 
counting, 221-22;  Responsibility 
for  merchandise,  253-55;  Receiv- 
ing and  recording  goods,  255- 
58;  Invoicing,  256-57;  Specula- 
tive profits,  257-58;  Reserve 
stocks,  258-60;  Stock  arrange 
ment,  according  to  lines,  260-61 ; 
Active  stock,  how  cared  for,  261- 
62 ;  Inventories,  physical  and 
perpetual,  262-68;  Specialty 
stores,  292-93;  Chain  stores, 
314-16;  System  illustrated,  315- 
16;  Mailorder  houses,  327;  Co- 
operative   stores,    339—40 

Store  Creed, 

Marshiill  Field's  statement,  196; 
Wanamaker  conception  of  a 
store's    duty,    198-99 


Trade  Acceptances, 

Replace   credits,    32-33 
Trading  Groups, 

Analyzing     the     selling    field,     179- 
81 ;    Drawing   class    lines,    188-89 
Training   SaJespeople, 

IJcsponsible  salesmen,  223-24; 
Store  policy  defined,  224;  Teach 
ing  the  store  system,  225-26; 
Guidance      for      beginners,      22C; 


Training    Salespeople — eontinued 

Educational  courses,  226-27;  Ef- 
ficiency bulletins,  227;  Merchan- 
dise studied,  227;  Junior  training 
classes,  228;  Public  school  and 
continuation  courses,  229 ;  Non- 
selling  emi)loyes  trained,  229- 
30;  Successful  results,  230; 
Chain    stores,   310-11 

Transportation, 

Jobbers'  r;ite  problems,  4—5;  Ter- 
ritory prescribed  for  service,  6- 
7;  Traffic  department,  113-14; 
Cooperative  jobbers'  delivery, 
144 

Turnover, 

Retail  standards  for,  238-39;  Mer- 
chandise factor,  240-42;  Spe 
cialty  shops,  295-96;  Chain 
stores.   316 


Wages, 

Work  standards,  106;  Bonus  sys- 
tems, 106-07;  Selling  agents. 
148;  Retail  workers,  216-18: 
Commissions  on  sales,  217;  Bonus 
and  premium  systems,  218;  Ad- 
vances in,  218;  Cooperative 
stores,    344—45 

Welfare  Work, 

Instruction  and  training,  107;  Re- 
tail stores,  216;  Libraries  and 
rest  rooms,  228;  Movement  for, 
in   Winnipeg,   229 

Wholesalers, 

Merchandising  analyzed,  3-13; 
Studying  competition,  16-21;  Co- 
operation essential,  18,  19;  Trade 
policies,  22-34;  Advantage  of 
trade  acceptances,  32;  Organiza 
tion,  past  and  present,  35-46: 
Jobber  advertising,  80-89;  Dealer 
cooperation,    90-102 

Window   Display, 

Effective  advertising,   281-82 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 

Los  Angeles 
This  book  is  DUE  on  the  last  date  stamped  below. 


i^     J 


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